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

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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 PV@10% = $950 / 1.10 + $1,040 / 1.10 2 + $1,130 / 1.10 3 + $1,075 / 1.10 4 = $3,306.37 PV@18% = $950 / 1.18 + $1,040 / 1.18 2 + $1,130 / 1.18 3 + $1,075 / 1.18 4 = $2,794.22 PV@24% = $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: X@5%: PVA = $6,000{[1 – (1/1.05) 9 ] / .05 } = $42,646.93 Y@5%: PVA = $8,000{[1 – (1/1.05) 6 ] / .05 } = $40,605.54 CHAPTER 6 DISCOUNTED CASH FLOW VALUATION
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B-70 SOLUTIONS And at a 15 percent interest rate: X@15%: PVA = $6,000{[1 – (1/1.15) 9 ] / .15 } = $28,629.50
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hw_ch06 - CHAPTER 6 B-69 CHAPTER 6 DISCOUNTED CASH FLOW...

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