Question

Question 12 (0.5 points) Suppose you have a cash outflow for your business $200,000 at the end of year 1. It increases 5% a year, what will be the size of the cash outflow in year 15? $425,898 $375,875 $399,999 $395,986

Answer 1

Question 12

Cash flow in year 1=CF1=$200,000

Growth rate=g=5%

Cash flow after 15 years=CF1*(1+g)^(n-1)=200000*(1+5%)^(15-1)=$395986.32

Correct option is

$395,986

Question 13

Cash flow after year 1=R=$50000

Growth rate=g=10%

Discount rate=i=6%

Number of periods=n=5

PV of growing annuity is given by

$PVg=\frac{R}{i-g}*\left [ 1-\frac{(1+g)^{n}}{(1+i)^{n})} \right ]$

$PVg=\frac{50000}{0.06-0.10}*\left [ 1-\frac{(1+0.10)^{5}}{(1+0.06)^{5})} \right ]=254,333.45$

Closest option is

$254,375