12#3 Solve various time value of money scenarios. Scenario 1. Harold just hit the jackpot in Las Vegas and won $50,000! If he invests it
12#3
Solve various time value of money scenarios.
Scenario 1.
Harold
just hit the jackpot in Las Vegas and won
$50,000!
If he invests it now, at a
10%
interest rate, how much will it be worth in
20
years? (Round your answer to the nearest whole dollar.)
| Future value | = |
Scenario 2.
Curtis
would like to have
$2,000,000
saved by the time he retires in
30
years. How much does he need to invest now at a
10%
interest rate to fund his retirement goal? (Round your answer to the nearest whole dollar.)
| Present value | = |
Scenario 3. Assume that
Lilian
accumulates savings of
$2
million by the time she retires. If she invests this savings at
8%,
how much money will she be able to withdraw at the end of each year for
15
years? (Round your answer to the nearest whole dollar and enter as a positive amount.)
| Amount able to withdraw | = |
Scenario 4.
Jessica
plans to invest
$5,000
at the end of each year for the next
eight
years. Assuming a
10%
interest rate, what will her investment be worth
eight
years from now? (Round your answer to the nearest whole dollar.)
| Future value | = |
|
Scenario 5. Assuming a
12%
interest rate, how much would
Sarah
have to invest now to be able to withdraw
$14,000
at the end of every year for the next
nine
years? (Round your answer to the nearest whole dollar.)
| Present value | = |
|
Scenario 6.
Booker
is considering a capital investment that costs
$500,000
and will provide
net cash inflows for three years.
Using a hurdle rate of
12%,
find the NPV of the investment. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negative NPV.)
| Net Present Value (NPV) | = |
|
Scenario 7. What is the IRR of the capital investment described in Question 6?
The IRR is the interest rate at which the investment
NPV = 0.
We tried
12%
in question 6, now we'll try
14%
and calculate the NPV. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negative NPV.)
| Net Present Value (NPV) | = |
|
The IRR for the project is
between 10% and 12%
between 12% and 14%
between 14% and 16%
between 16% and 18%
1.
Harold
just hit the jackpot in Las Vegas and won
$50,000!
If he invests it now, at a
10%
interest rate, how much will it be worth in
20
years?2.
Curtis
would like to have
$2,000,000
saved by the time he retires in
30
years. How much does he need to invest now at a
10%
interest rate to fund his retirement goal?3. Assume that
Lilian
accumulates savings of
$2
million by the time she retires. If she invests this savings at
8%,
how much money will she be able to withdraw at the end of each year for
fifteen
years?4.
Jessica
plans to invest
$5,000
at the end of each year for the next
eight
years. Assuming a
10%
interest rate, what will her investment be worth
eight
years from now?5. Assuming a
12%
interest rate, how much would
Sarah
have to invest now to be able to withdraw
$14,000
at the end of every year for the next
nine
years?6.
Booker
is considering a capital investment that costs
$500,000
and will provide the following net cash inflows:
| Year | Net Cash Inflow |
|---|---|
| Year 1. . . | $302,000 |
| Year 2. . . | $208,000 |
| Year 3. . . | $98,000 |
Using a hurdle rate of
12%,
find the NPV of the investment.
7. What is the IRR of the capital investment described in Question 6?
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Authors: Hilde Meersman, Eddy Van De Voorde, Thierry Vanelslander
1st Edition
0415720060, 978-0415720069
