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Unformatted text preview: 8. 9. 10. ) 3. C H A P T E R 6 D i s c o u n t e d C a s h F t o w V a l u a t i o n Time Value On subsidized Stafford loans, a common source of financial aid for college students, interest does not begin to accrue until repayment begins. Who receives a bigger subsidy, a freshman or a senior? Explain. In words, how would you go about valuing the subsidy on a subsidized Stafford loan? Time Value Eligibility for a subsidized Staffbrd loan is based on current financial need. However, both subsidized and unsubsidized Stafford loans are repaid out of future income. Given this, do you see a possible objection to having two types'? Time Value A viatical settlement is a lump sum of money given to a terminally ill individual in exchange for his life insurance policy. When the insured person dies, the purchaser receives the payout from the life insurance policy. What factors determine the value of the viatical settlement? Do you think such settlements are ethical? Why or why not? Present Value and Multiple Cash Flows Amman Beauty Products has identified an BASIC investment project with the following cash flows, denominated in millions of dinars. (Questions 1-28) If the discount rate is 8 percent, what is the present value of these cash flows'l What is the present value at l6 percent? At 30 percent? TM Year 1 I A + Gash Flow JOD 1,200 600 855 1 , 4 8 0 ?7 1,1 Present Value and Multiple Cash Flows Investment X offers to pay you 40,000 riyals per year for nine years, whereas Investment Y offers to pay you 60,000 riyals per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rafe is 22 percent? Future Value and Multiple Cash Flows Ridhi Sidhi Jeweller.s has identified an investment project with the fbllowing cash flows, denominated in thousands of rupees. If the discount rate is 8 percent, what is the future value of these cash flows in Year 4? What is the future value at a discount rate of I I percent? At 24 percent'/ Year 1 Z A a Cash Flow ; INR 800 ' 900 , 1 , 0 0 0 1 ,'100 : v7 1.4, 1. Calculating Annuity Present Value An investment offers $3,600 per year for l5 years, with the first payment occurring one year from now. If the required return is l2 percent. what is the value of the investment'l What would the value be if the payments occurred fbr 40 years? For 100 years? Forever'? Calculating Annuity Cash Flows If you put up 294,000 Egyptian pounds today in exchange for a 7.65 percent, l4-year annuity, what will the annnal cash flow be? 182 PA RT 3 Valuation of Future Cash Ftows n 6. Calculating Annuity Values Your company will generate 852,000 pesos in annual revenue each year fbr the next eight years from a new information database. If the appropriate interest rate is 8.5 percent, what is the present value of the savings?...
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This note was uploaded on 04/18/2010 for the course BUSINESS 231 taught by Professor Steven during the Spring '10 term at 카이스트, 한국과학기술원.
- Spring '10