The proposed deal calls for payments of 30000 and

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Unformatted text preview: budget—that is, to make inflows equal outflows. You expect to be able to earn 8% on your investments during the next 5 years and wish to fund the budget shortfalls over the next 5 years with a single amount. 180 PART 2 Important Financial Concepts End of year Budget shortfall 1 $ 5,000 2 4,000 3 6,000 4 10,000 5 3,000 a. How large must the single deposit today into an account paying 8% annual interest be to provide for full coverage of the anticipated budget shortfalls? b. What effect would an increase in your earnings rate have on the amount calculated in part a? Explain. LG4 4–31 Relationship between future value and present value—Mixed stream Using only the information in the accompanying table, answer the questions that follow. Year (t ) Cash flow Future value interest factor at 5% (FVIF5%,t) 1 $ 800 1.050 2 900 1.102 3 1,000 1.158 4 1,500 1.216 5 2,000 1.276 a. Determine the present value of the mixed stream of cash flows using a 5% discount rate. b. How much would you be willing to pay for an opportunity to buy...
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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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