Warr22e_IM_TM_Ch26

Warr22e_IM_TM_Ch26 - Transparency Master 26-1 INVESTMENT...

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Transparency Master 26-1 INVESTMENT ANALYSIS Project A Project B Cost. ........................................................ \$560,000 \$900,000 Expected life. ......................................... 4 years 4 years Expected residual value. ...................... \$0 \$0 Project A Project B Net Net Expected returns Income Cash Flow Income Cash Flow Year 1 \$10,000 \$150,000 \$100,000 \$325,000 Year 2 50,000 190,000 100,000 325,000 Year 3 80,000 220,000 100,000 325,000 Year 4 84,000 224,000 100,000 325,000

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Transparency Master 26-2 PRESENT VALUE PROBLEMS 1. What is the present value of \$1,000,000 to be re- ceived 10 years from now, with interest compoun- ded at 15% annually? 2. What is the present value of an annuity of \$10,000 for 5 years at 12%? 3. How much cash would you need to invest in a money market account today in order to have \$8,000 at the end of four years? Assume interest rates are 6%. 4. How much cash would you need to invest in a money market account today in order to be able to withdraw \$8,000 per year at the end of each of the next four years? Assume interest rates are 6%? 5. Assume you won the grand prize in a sweepstakes. Would it be better to take your prize in \$100,000 payments each year over the next ten years or \$600,000 now? Interest rates are 10%.
Transparency Master 26-3 PRESENT VALUE PROBLEMS Solution 1. What is the present value of \$1,000,000 to be received 10 years from now, with interest compounded at 15% annu- ally? \$1,000,000

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This note was uploaded on 04/20/2010 for the course BUSINESS Accounting taught by Professor Ebiohuche during the Spring '10 term at DeVry Manhattan.

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Warr22e_IM_TM_Ch26 - Transparency Master 26-1 INVESTMENT...

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