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1. If your required rate of return is 8% per year, what is the present value of the above cash flows? (Cash Flow 1) 2.
| 1. If your required rate of return is 8% per year, what is the present value of the above cash flows? (Cash Flow 1) | |||||||||
| 2. If your required rate of return is 8% per year, what is the future value of the above cash flows? (Cash Flow 1) | |||||||||
| 3. Suppose that you are offered another investment that is identical, except the cash flows are reveresed. Compute the PV and FV, is this investment worth more or less than questions #1 and #2? (Cash Flow 1 compared to Cash Flow 3 PV and FV) | |||||||||
| 4. If you paid $150,000 for the original investment, what average annual rate of return would you earn? What return would you earn on the reversed cash flows? (Cash Flow 4 and Reversed Cash Flow 4) | |||||||||
| Given the following set of cash flows: | Reversed | |||||
| Reversed | Cash Flow 4 | Cash Flow 4 | ||||
| Period | Cash Flow 1 | Cash Flow 3 | $ (150,000) | $ (150,000) | ||
| 1 | $ 40,000 | $ 5,000 | $ 40,000 | $ 5,000 | ||
| 2 | $ 35,000 | $ 10,000 | $ 35,000 | $ 10,000 | ||
| 3 | $ 30,000 | $ 15,000 | $ 30,000 | $ 15,000 | ||
| 4 | $ 25,000 | $ 20,000 | $ 25,000 | $ 20,000 | ||
| 5 | $ 20,000 | $ 25,000 | $ 20,000 | $ 25,000 | ||
| 6 | $ 15,000 | $ 30,000 | $ 15,000 | $ 30,000 | ||
| 7 | $ 10,000 | $ 35,000 | $ 10,000 | $ 35,000 | ||
| 8 | $ 5,000 | $ 40,000 | $ 5,000 | $ 40,000 | ||
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