Chapter04

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Unformatted text preview: eriods, n 2% 4 B 5 3 D 4–10 2 C LG2 10 13 2 Present values For each of the cases shown in the following table, calculate the present value of the cash flow, discounting at the rate given and assuming that the cash flow is received at the end of the period noted. Case Single cash flow Discount rate End of period (years) A $ 7,000 12% 4 B 28,000 8 20 C 10,000 14 12 D 150,000 11 6 E 45,000 20 8 LG2 4–11 Present value concept Answer each of the following questions. a. What single investment made today, earning 12% annual interest, will be worth $6,000 at the end of 6 years? b. What is the present value of $6,000 to be received at the end of 6 years if the discount rate is 12%? c. What is the most you would pay today for a promise to repay you $6,000 at the end of 6 years if your opportunity cost is 12%? d. Compare, contrast, and discuss your findings in parts a through c. LG2 4–12 Present value Jim Nance has been offered a future payment of $500 three years from today. If his opportunity cost is 7% compounded annually, what value should he place on this opportunity today? What is the most he should pay to purchase this payment tod...
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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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