Question
1) Annual cash inflows that will arise from two competing investment projects are given below: Year Investment A Investment B 1 $ 5,000 $8,000 2
1) Annual cash inflows that will arise from two competing investment projects are given below: Year Investment A Investment B 1 $ 5,000 $8,000 2 6,000 7,000 3 7,000 6,000 4 8,000 5,000 Total $26,000 $26,000 The discount rate is 11%. Use Excel or a financial calculator to solve the homework. Round answers to the nearest dollar. Required: Compute the present value of the cash inflows for each investment. Each investment opportunity will require the same initial investment.
Present value of cashflows
Investment A ?
nvestment B?
2)
Julie has just retired. Her companys retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $157,000 immediately as her full retirement benefit. Under the second option, she would receive $20,000 each year for six years plus a lump-sum payment of $65,000 at the end of the six-year period. |
Use Excel or a financial calculator to solve. Round answers to the nearest dollar. |
Required: | |
1a. | Calculate the present value for the following assuming that the money can be invested at 12%. |
1b. | If you can invest money at a 12% return, which option would you prefer? | ||||
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3. Fraser Company will need a new warehouse in three years. The warehouse will cost $360,000 to build. |
Use Excel or a financial calculator to solve. Round answers to the nearest dollar. |
Required: | |
1. | What lump-sum amount should the company invest now to have the $360,000 available at the end of the three-year period? Assume that the company can invest money at six percent. |
2. | What lump-sum amount should the company invest now to have the $360,000 available at the end of the three-year period? Assume that the company can invest money at ten percent. |
4. The Atlantic Medical Clinic can purchase a new computer system that will save $6,000 annually in billing costs. The computer system will last for six years and have no salvage value. |
Use Excel or a financial calculator to solve. Round answers to the nearest dollar. |
Required:
Up to how much should the Atlantic Medical Clinic be willing to pay for the new computer system if the clinics required rate of return is: |
5. The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the states newest millionaire. By choosing the six winning numbers on last weeks state lottery, Mr. Ormsby has won the weeks grand prize totaling $1.12 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $56,000 each. |
Use Excel or a financial calculator to solve. Round answers to the nearest dollar. |
Required: | |
1. | If Mr. Ormsby can invest money at a 8% rate of return, what is the present value of his winnings? |
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