ZuoTi.Pro
Question

a)

Suppose tht you are to receive payments (in thousands of dollars) at the end of each year for the next five years. Which of the payment sequence is prefered? A: 12,14,16,18,20; B: 16,16,15,15,15; . C: 20,16,14,12,10 CO

b)

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

a) Since here we are talking about future cash flows, we need to see what is there value today.This is because we can expect big cash flow coming in after 10 years but if we calculate its present value, its worth might be very less.

So in general, people prefer getting payment as early as possible because of discounting factor.

Lets assume discount rate = 10%

In the given cas, we will select A since its PV is highest

Lets assume discount rate 10% Year Cash Flows Present value of cash flows Total value 4 12.00 14.00 16.00 18.00 20.00 10.91 11.57 12.02 12.2912.42 59.21 Year 4 Present value of cash flows Total value 16.00 16.00 15.00 15.00 15.00 14.55 13.22 11.27 10.25 58.60 9.31 Year 4 Present value of cash flows Total value 20.00 16.00 14.00 12.00 10.00 18.18 13.22 10.52 56.33 8.20 6.21

B)

0 0
Add a comment
Know the answer?
Add Answer to:
a) b) Suppose tht you are to receive payments (in thousands of dollars) at the end...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Suppose for an investment of 10,000 you will receive payments at the end of each of...

    Suppose for an investment of 10,000 you will receive payments at the end of each of the next four years in the amounts 2000, 3000, 4000 and 3000. What is the rate of return per year? (Use Newton's Method)

  • You just won the lottery! You can elect to receive your prize in one of four...

    You just won the lottery! You can elect to receive your prize in one of four ways: a) $1,000,000 now b) $1,400,000 at the end of five years e) $75,000 per year in perpetuity, with payments made at the end of each year (so your first payment comes one year from today) d) $150,000 per year for the next ten years, with payments made at the end of each year (so your first payment comes one year from today) Suppose...

  • Please show your work! Suppose you will receive payments of $10,000 at the end of each...

    Please show your work! Suppose you will receive payments of $10,000 at the end of each of the next 16 years. What is the present value of this stream of payments? The interest rate is 8%. Enter your response below (rounded to 2 decimal places). Number

  • Suppose you receive $100 at the end of each year for the next three years. (a)If...

    Suppose you receive $100 at the end of each year for the next three years. (a)If the interest rate is 9%, what is the present value (in $) of these cash flows? Compute the PV of this annuity both as the sum of PV of each cash flow and using the annuity formula. (Round your answers to the nearest cent.) using the sum of PV $ using the annuity formula $ (b)What is the future value (in $) of the...

  • 4. Bond Valuation Suppose you invest $3500 today and receive $9500 in five years. a. What...

    4. Bond Valuation Suppose you invest $3500 today and receive $9500 in five years. a. What is the IRR of this opportunity? b. Suppose another investment opportunity also requires $3500 upfront, but pays an equal amount at the end of each year for the next five years. If this investment has the same IRR as the first one, what is the mount you will receive each year? 5. Bond Valuation Suppose that Ally Financial Inc. issued a bond with 10...

  • You won a lottery that will make equal payments of $1,000 at the end of each...

    You won a lottery that will make equal payments of $1,000 at the end of each year for the next five years. If the annual interest rate stays constant at 5%, what is the value of these payments in today's dollars? (Note: Round your answer to the nearest whole dollar.) $3,681 O $4,330 O $5,413 O $4,547 You found out that now you are going to receive payments of $7,500 for the next 15 years. You will receive these payments...

  • You will receive annual payments of $4,000 at the end of each year for ten years...

    You will receive annual payments of $4,000 at the end of each year for ten years (10 payments). The first payment will be received in year 3. What is the present value (t-0) of these payments if the discount rate is 9 percent.

  • 1. Suppose that you will receive annual payments of $20,000 for a period of 10 years....

    1. Suppose that you will receive annual payments of $20,000 for a period of 10 years. The first payment will be made 5 years from now. If the interest rate is 5%, what is the present value of this stream of payments? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 2. The $47.5 million lottery payment that you have just won actually pays $1.9 million per year for 25 years. The interest rate is 10%. a....

  • You have a partnership stake in a business that pays you equal payments of $1,500 at...

    You have a partnership stake in a business that pays you equal payments of $1,500 at the end of each year for the next five years. If the annual interest rate stays constant at 4%, what is the value of these payments in today’s dollars? Round your answer to the nearest whole dollar. a. $8,348 b. $6,678 c. $5,676 d. $6,945 You found out that now you are going to receive payments of $6,500 for the next 15 years. You...

  • Suppose you invest $ 3,500 today and receive $ 9,000 in five years. a. What is...

    Suppose you invest $ 3,500 today and receive $ 9,000 in five years. a. What is the internal rate of return​ (IRR) of this​ opportunity? b. Suppose another investment opportunity also requires $ 3,500 ​upfront, but pays an equal amount at the end of each year for the next five years. If this investment has the same IRR as the first​ one, what is the amount you will receive each​ year?

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
Active Questions
ADVERTISEMENT