The buyer is willing to pay 24000 at the closing of

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Unformatted text preview: ear 5? c. On the basis of your findings in parts a and b, which alternative should Gina take? d. If Gina could earn 10% rather than 7 percent on the funds, would your recommendation in part c change? Explain. LG4 4–27 Present value—Mixed streams Find the present value of the streams of cash flows shown in the following table. Assume that the firm’s opportunity cost is 12%. CHAPTER 4 A B Year Year $2,000 1 2 3,000 2–5 3 4,000 6 4 179 C 6,000 5 4–28 Cash flow 1 LG4 Time Value of Money Cash flow Year Cash flow $10,000 1–5 $10,000/yr 8,000 5,000/yr 6–10 8,000/yr 7,000 Present value—Mixed streams Consider the mixed streams of cash flows shown in the following table. Cash flow stream Year A B 1 $ 50,000 $ 10,000 2 40,000 20,000 3 30,000 30,000 4 20,000 40,000 5 10,000 50,000 $150,000 $150,000 Totals a. Find the present value of each stream using a 15% discount rate. b. Compare the calculated present values and discuss them in light of the fact that the undiscounted cash flows total...
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This document was uploaded on 03/03/2014 for the course MBA BMMF at Open University Malaysia.

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