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Unformatted text preview: Lecture Problem Solutions
Time Value of Money Day 3 1. How much is a building worth that is expected to produce cash ﬂows of $200,000 in 1 year and
$500,000 in 2 years if the cost of capital is 10%? S°°k D
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at the end of years 1 and 2. How much cash ﬂow is the building expected to produce in 2 years if it is
expected to produce cash ﬂows of $200,000 in 1 year and has a cost of capital of 10%? +3 ¢z=? Z Q‘Ys ‘W SOlV5.‘
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L—ew C7, ‘ FUTWA ' F99 You own a building that is expected to make annual cash ﬂows forever. 1. What is the value of the building if the cost of capital is 8.0% and annual cash ﬂows of $500,000 are
expected with the ﬁrst one in 1 year? c Sootooa .— g
E: ,(L: 1 0.0? —W 2. What is the value of the building if the cost of capital is 8.3% and annual cash ﬂows are expected to
grow by 2.3% per year forever with the ﬁrst one expected to be $500,000 in 1 e ‘7 Cl Soolaoo $1 %‘333,333§ . K, 3 (r’a)  (o_o<5‘$—0,0L‘>> 3. If the building is worth $2,300,000, the cost of capital is 5%, and annual ﬁxed cash ﬂows are expected with the ﬁrst one due in one year, what is the amount of the annual cash ﬂows produced by
the building expected to be? C»
V0: ‘7‘”? C\:?°Kr C, .g 2.300.000 x 0.05 7' L$ HSIOOO You own a building .hat is expected to make annual cash ﬂows forever. 4. If the building is worth $2,300,000, the cost of capital is 5%, and annual cash ﬂows are expected
with the ﬁrst one due in one year and all subsequent ones grong annually by 2.2%, then what is the
amount of the cash ﬂow produced by the building in 1 year expected to be? R» ”' c7733 ‘9 C7 ﬁx“? Ck 7 ZIZoO/oco K (0.05 —o.OZ?,) 5. If the building is worth $2,300,000, the cost of capital is 5%, and annual cash ﬂows are expected
with the ﬁrst one due in one year and all subsequent ones growing annually by 2.2%, then what is the
amount of the cash ﬂow produced by the building in 3 years expected to be? an W [er‘ we “vegan, few! c, a we
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 Spring '09
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