hw_ch06

# hw_ch06 - CHAPTER 6 B-69 CHAPTER 6 DISCOUNTED CASH FLOW...

This preview shows pages 1–3. Sign up to view the full content.

CHAPTER 6 B-69 Solutions to Questions and Problems NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem. Basic 1. To solve this problem, we must find the PV of each cash flow and add them. To find the PV of a lump sum, we use: PV = FV / (1 + r) t [email protected]% = \$950 / 1.10 + \$1,040 / 1.10 2 + \$1,130 / 1.10 3 + \$1,075 / 1.10 4 = \$3,306.37 [email protected]% = \$950 / 1.18 + \$1,040 / 1.18 2 + \$1,130 / 1.18 3 + \$1,075 / 1.18 4 = \$2,794.22 [email protected]% = \$950 / 1.24 + \$1,040 / 1.24 2 + \$1,130 / 1.24 3 + \$1,075 / 1.24 4 = \$2,489.88 2. To find the PVA, we use the equation: PVA = C ({1 – [1/(1 + r) ] t } / r ) At a 5 percent interest rate: PVA = \$6,000{[1 – (1/1.05) 9 ] / .05 } = \$42,646.93 PVA = \$8,000{[1 – (1/1.05) 6 ] / .05 } = \$40,605.54 CHAPTER 6 DISCOUNTED CASH FLOW VALUATION

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
B-70 SOLUTIONS And at a 15 percent interest rate: PVA = \$6,000{[1 – (1/1.15) 9 ] / .15 } = \$28,629.50
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 5

hw_ch06 - CHAPTER 6 B-69 CHAPTER 6 DISCOUNTED CASH FLOW...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online