Question

6. What is the Present Value of the company's Discounted Cash Flow assuming you can get a) a safe return of 5% in the market? Calculate each year's PV in the spaces provided above. Present Value of Discounted Cash Flows: What is the Net Present Value of this company if you pay $2,500 for it? c) Would you pay $2,700 for this company? YES NO What is the Present Value of $95,000 in 7 years given a discount rate of 4.25% e) What will $2,300 be worth in 20 years? Your Macroeconomics Instructor offers to pay you $5,000 in 2030 if you become an economist. (You can assume a market rate of return of 6%.) 9 How much is that worth in 2023? today?

the company has the following future cash flows

year 1: 300$

year 2: 450$

year 3: 500$

year 4: 600$

year 5: 625$

year 6: 750$

Answer 1

	Question 6(a)
		Year	Cash flow $	Present value @5%	Present value of cash flow $
		1	300	=300/(1+5%)^year 1	285.71
		2	450	=450/(1+5%)^year 2	408.16
		3	500	=500/(1+5%)^year 3	431.92
		4	600	=600/(1+5%)^year 4	493.62
		5	625	=625/(1+5%)^year 5	489.70
		6	750	=750/(1+5%)^year 2	559.66
			Total of present value of cash flow		2,668.78
	Question 6(b)
		Year	Cash flow $	Present value @5%	Present value of cash flow $
		1	300	=300/(1+5%)^year 1	285.71
		2	450	=450/(1+5%)^year 2	408.16
		3	500	=500/(1+5%)^year 3	431.92
		4	600	=600/(1+5%)^year 4	493.62
		5	625	=625/(1+5%)^year 5	489.70
		6	750	=750/(1+5%)^year 2	559.66
			Total of present value of cash flow		2,669
			Less;-Present value of cash outflow		(2,500)
				Net Present value	169
	Question 6(c)
		Year	Cash flow $	Present value @5%	Present value of cash flow $
		1	300	=300/(1+5%)^year 1	285.71
		2	450	=450/(1+5%)^year 2	408.16
		3	500	=500/(1+5%)^year 3	431.92
		4	600	=600/(1+5%)^year 4	493.62
		5	625	=625/(1+5%)^year 5	489.70
		6	750	=750/(1+5%)^year 2	559.66
			Total of present value of cash flow		2,669
			Less;-Present value of cash outflow		(2,700)
				Net Present value	(31)
		We would not like to pay $ 2,700 as the net present value is negative if we pay $ 2,700
	Question 6(c)
		Present value of single cash flow=	Cash flow/(1+Discount rate)^ no of year
		Present value of single cash flow=	95,000/(1+4.25%)^7
		Present value of single cash flow=	95,000/1.3382352
		Present value of single cash flow=	70,989