Question

Yeurs Rp. 2.000.000 6. You have just purchased 300 shares of Unilever stock at $25 per share. You will sell the stock when its market price doubles. If you expect the stock price to increase 15% per year, how long do you expect to wait before selling the stock? 7. A project is expected to generate a cash flow of $4000 in year 1, $2000 in year 2, and $5000 in year 3. At an interest rate of 5%, what is the maximum amount that you could invest in the project at year 0?

number 7,9,10

Answer 1

6. Purchase Price = PV = $25

Selling Price = FV = 25*2 = $50

Increase each year = r = 15%

Let number of years be n

Hence, FV = PV(1+r)ⁿ

=> n = ln (FV / PV) / ln (1+r) = ln (50 / 20) / ln (1+0.15) = 6.56 years

7.

Let the cash flow in Year n be CF_n

Let maximum amount invested in Year 0 be CF₀
Given, CF₁ = 4000
CF₂ = 2000
CF₃ = 5000
Discount Rate = r = 5%

Net Present Value = -CF₀ + CF₁/(1+r) + CF₂/(1+r)² + CF₃/(1+r)³

NPV should be greater than 0

=> -CF₀ + CF₁/(1+r) + CF₂/(1+r)² + CF₃/(1+r)³ > 0

=> -CF₀ + 4000/(1+0.05) + 2000/(1+0.05)² + 5000/(1+0.05)³ > 0

=> CF₀ < $9942.77

Hence, a maximum of $9942.77 can be invested