FIN3300 Solution Ch6 (M 0628)

FIN3300 Solution Ch6 (M 0628) - Solution Chapter 6:...

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Solution Chapter 6: Discounted Cash Flow Valuation Page 179 Questions: 1, 3, 4, 5, 7, 10 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 3. To solve this problem, we must find the FV of each cash flow and add them. To find the FV of a lump sum, we use: FV = PV(1 + r) t [email protected]% = $940(1.08) 3 + $1,090(1.08) 2 + $1,340(1.08) + $1,405 = $5,307.71 [email protected]% = $940(1.11) 3 + $1,090(1.11) 2 + $1,340(1.11) + $1,405 = $5,520.96 [email protected]% = $940(1.24) 3 + $1,090(1.24) 2 + $1,340(1.24) + $1,405 = $6,534.81 Notice we are finding the value at Year 4, the cash flow at Year 4 is simply added to the FV of the other cash flows. In other words, we do not need to compound this cash
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This note was uploaded on 05/18/2011 for the course FINANCE Fin3300 taught by Professor Mosley during the Summer '10 term at CSU East Bay.

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FIN3300 Solution Ch6 (M 0628) - Solution Chapter 6:...

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