a)
FV
($12,000)
Periods
5
Rate of Return
12%
PV
$6,809.12
b)
Payaments
$16,000
Periods
12
Discount Rate
14%
PV
($90,564.67)
c)
Year
Cash Flow
1
$15,000
2
$0
3
$10,000
Discount Rate
10%
PV
$21,149.51
d)
Year
Cash Flow
1
$8,000
2
$8,000
3
$8,000
4
$10,000
Discount Rate
16%
PV
$23,490.03
1. Basic present value calculations
Calculate the present value of the following cash flows, rounding to the nearest
dollar:
a.
A single cash inflow of $12,000 in five years, discounted at a 12% rate of
return.
b.
An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate
of return.
c.
A single receipt of $15,000 at the end of Year 1 followed by a single receipt of
$10,000 at the end of Year 3. The company has a 10% rate of return.
d.
An annual receipt of $8,000 for three years followed by a single receipt of
$10,000 at the end of Year 4. The company has a 16% rate of return.

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Bruce Greene
Investment
($10,000)
Number of Shares Purchased
500
Div. 20X1
$2.60
Div. 20X2
$2.60
Div. 20X3
$3.10
$13,000
Required Return
16%
a)
Year
Cash Flow
0
($10,000)
1
$1,300.00
2
$1,300.00
3
$1,550.00
3
$13,000
b)
Year
Cash Flow
PV Factor @ 16%
PV
0
($10,000)
1
($10,000)
1
$1,300.00
0.8621
$1,121
2
$1,300.00
0.7432
$966
3
$1,550.00
0.6407
$993
3
$13,000
0.6407
$8,329
NPV
$1,408
c)
2. Cash flow calculations and net present value
On January 2, 20X1, Bruce Greene invested $10,000 in the stock market and purchased 5
Development, Inc. Heartland paid cash dividends of $2.60 per share in 20X1 and 20X2; t
$3.10 per share in 20X3. On December 31, 20X3, Greene sold his holdings and generated
Greene uses the net-present- value method and desires a 16% return on investments.
a.
Prepare a chronological list of the investment's cash flows. Note: Greene is entitled to
b.
Compute the investment's net present value, rounding calculations to the nearest dolla
c.
Given the results of part (b), should Greene have acquired the Heartland stock? Brief
Yes, Greene should have acquired the Heartland stock since the investment has a
positive NPV.
This means that in discounting the cash inflows to their present value,

positive NPV.
This means that in discounting the cash inflows to their present value,
there is
a profit of $1,408.

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- Fall '19