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Unformatted text preview: FNAN 301, Fall 2010, quiz 2, solutions Present value of an annuity and one extra cash flow 1. Mackinac Industries own a building that has an expected return of 12.0 percent. The building is expected to produce annual cash flows of $18,000 for 8 years, with the first of those payments expected in 1 year from today. In addition to the annual cash flows, the building is also expected to produce a onetime cash flow of $29,000 in 7 years from today. How much is Mackinac’s building worth? 1. Mackinac Industries own a building that has an expected return of 14.0 percent. The building is expected to produce annual cash flows of $16,000 for 8 years, with the first of those payments expected in 1 year from today. In addition to the annual cash flows, the building is also expected to produce a onetime cash flow of $52,000 in 7 years from today. How much is Mackinac’s building worth? 1. Mackinac Industries own a building that has an expected return of 16.0 percent. The building is expected to produce annual cash flows of $14,000 for 8 years, with the first of those payments expected in 1 year from today. In addition to the annual cash flows, the building is also expected to produce a onetime cash flow of $52,000 in 7 years from today. How much is Mackinac’s building worth? 1. Mackinac Industries own a building that has an expected return of 18.0 percent. The building is expected to produce annual cash flows of $12,000 for 8 years, with the first of those payments expected in 1 year from today. In addition to the annual cash flows, the building is also expected to produce a onetime cash flow of $87,000 in 7 years from today. How much is Mackinac’s building worth? PV of a delayed, fixed perpetuity 2. What is the value of a fishing pond that is expected to generate no cash flows for several years and then fixed annual cash flows of $127,000 per year forever if the first annual $127,000 cash flow is expected in 6 years and the discount rate is 12.9 percent? 2. What is the value of a fishing pond that is expected to generate no cash flows for several years and then fixed annual cash flows of $127,000 per year forever if the first annual $127,000 cash flow is expected in 6 years and the discount rate is 13.9 percent? 2. What is the value of a fishing pond that is expected to generate no cash flows for several years and then fixed annual cash flows of $127,000 per year forever if the first annual $127,000 cash flow is expected in 7 years and the discount rate is 12.9 percent? 2. What is the value of a fishing pond that is expected to generate no cash flows for several years and then fixed annual cash flows of $127,000 per year forever if the first annual $127,000 cash flow is expected in 7 years and the discount rate is 13.9 percent?...
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This note was uploaded on 02/03/2011 for the course FINANCE 301 taught by Professor Murray during the Spring '09 term at George Mason.
 Spring '09
 MURRAY
 Annuity

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