CH 6 Finance - 1 Homework Chapter 6 Discounted Cash Flows...

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Homework: Chapter 6 Discounted Cash Flows and Valuation VIII. Questions and Problems BASIC 6.1 Future value with multiple cash flows: Konerko, Inc., expects to earn cash flows of $13,227, $15,611, $18,970, and $19,114 over the next four years. If the company uses an 8 percent discount rate, what is the future value of these cash flows at the end of year 4? Solution: 0 8% 1 2 3 4 ├───────┼────────┼───────┼────────┤ $13,227 $15,611 $18,970 $19,114 6.2 Future value with multiple cash flows: Ben Woolmer has an investment that will pay him the following cash flows over the next five years: $2,350, $2,725, $3,128, $3,366, and $3,695. If his investments typically earn 7.65 percent, what is the future value of the investment’s cash flows at the end of five years? 1 $74,472.48 = + + + = + + + = 114 , 19 $ 60 . 487 , 20 $ 67 . 208 , 18 $ 21 . 662 , 16 $ 114 , 19 $ ) 08 . 1 ( 970 , 18 $ ) 08 . 1 ( 611 , 15 $ ) 08 . 1 ( 227 , 13 $ FV 1 2 3 4
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Solution: 0 7.65% 1 2 3 4 5 ├───────┼────────┼───────┼────────┼───────┤ $2,350 $2,725 $3,128 $3,366 $3,695 $17,498.75 = + + + + = + + + + = 695 , 3 $ 50 . 623 , 3 $ 89 . 624 , 3 $ 45 . 399 , 3 $ 91 . 155 , 3 $ 695 , 3 $ ) 0765 . 1 ( 366 , 3 $ ) 0765 . 1 ( 128 , 3 $ ) 0765 . 1 ( 725 , 2 $ ) 0765 . 1 ( 350 , 2 $ FV 1 2 3 4 5 6.3 Future value with multiple cash flows: You are a freshman in college and are planning a trip to Europe when you graduate from college at the end of four years. You plan to save the following amounts starting today: $625, $700, $700, and $750. If the account pays 5.75 percent annually, how much will you have at the end of four years? Solution: 0 5.75% 1 2 3 4 ├───────┼────────┼───────┼────────┤ $625 $700 $700 $750 $3,185.40 = + + + = + + + = 13 . 793 81 . 782 $ 83 . 827 $ 63 . 781 $ ) 0575 . 1 ( 750 $ ) 0575 . 1 ( 700 $ ) 0575 . 1 ( 700 $ ) 0575 . 1 ( 625 $ FV 2 3 4 4 6.4 Present value with multiple cash flows: Saul Cervantes has just purchased some equipment for his landscaping business. He plans to pay the following amounts at the end 2
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of the next five years: $10,450, $8,500, $9,675, $12,500, and $11,635. If he uses a discount rate of 10.875 percent, what is the cost of the equipment he purchased today? Solution: 0 10.875% 1 2 3 4 5 ├───────┼────────┼───────┼────────┼───────┤ $10,450 $8,500 $9,675 $12,500 $11,635 $38,652.76 = + + + + = + + + + = 82 . 943 , 6 $ 33 . 271 , 8 23 . 098 , 7 $ 35 . 914 , 6 $ 03 . 425 , 9 $ ) 10875 . 1 ( 635 , 11 $ ) 10875 . 1 ( 500 , 12 $ ) 10875 . 1 ( 675 , 9 $ ) 10875 . 1 ( 500 , 8 $ ) 10875 . 1 ( 450 , 10 $ PV 5 4 3 2 6.5 Present value with multiple cash flows: Jeremy Fenloch borrowed from his friend a certain amount and promised to repay him the amounts of $1,225, $1,350, $1,500, $1,600, and $1,600 over the next five years. If the friend normally discounts investments at 8 percent annually, how much did Jeremy borrow? Solution: 0 8% 1 2 3 4 5 ├───────┼────────┼───────┼────────┼───────┤ $1,225 $1,350 $1,500 $1,600 $1,600 3
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$5,747.40 = + + + + = + + + + = 93 . 088 , 1 $ 05 . 176 , 1 $ 75 . 190 , 1 $ 41 . 157 , 1 $ 26 . 134 , 1 $ ) 08 . 1 ( 600 , 1 $ ) 08 . 1 ( 600 , 1 $ ) 08 . 1 ( 500 , 1 $ ) 08 . 1 ( 350 , 1 $ ) 08 . 1 ( 225 , 1 $ PV 5 4 3 2 6.6 Present value with multiple cash flows: Biogenesis, Inc., expects the following cash flow stream over the next five years. The company discounts all cash flows at a 23 percent discount rate. What is the present value of this cash flow stream?
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