Calculate the geometric mean of the following percent increases 8, 12, 14, 26, and 4 Calculate the geometric mean of the following percent increases 2, 8, 6, 4, 10, and 8 The Consumer Price Index is reported monthly by the U S Bureau of Labor Statistics It reports the change in prices for a market basket of goods from one period to another The index for 2004 was 148,2 By 2016 it had increased to 200,6 What was the geometric mean annual increase for the period Circulation of the weekly Nrnberg student newspaper, The Notorious N B G , increased from 12 300 issues per year in 2012 to 52 500 in 2015 Find the geometric mean annual percent increase Use the information below to answer questions 15, 16 and 17 The percent increase in sales for the last four years at Blickpunkt Pop were 4,91 5,75 8,12 and 21,60 Calculate the geometric mean percent increase Calculate the arithmetic mean percent increase Is the arithmetic mean equal to or greater than the geometric mean Homework exercises Net Present Value Use the information below to answer question 8 Universal Studios is considering an acquisition of the smaller German company X Verleih AG A due diligence report has suggested that a price of 50 million would be a reasonable price for Universal to pay for X Verleih Universal executives have estimated that they could generate average annual cash flows from this acquisition of 6,75 million per year over a 10 year period At the end of the 10 years, Universal will need to make new estimates about the future prospects of the acquired company and the value of the related assets Currently, Universal's management team is basing its calculations on the conservative assumption that the residual value of the smaller firm's assets at the end of 10 years will be zero In order to raise the cash needed to finance this acquisition, Universal anticipates a cost of capital of 12 What is the NPV of this acquisition Should Universal proceed with or abandon its plans to acquire X Verleih Use the information below to answer question 9 Fun Time Corporation operates amusement parks The company is considering investing in a new ride The ride would cost 450 000 and has an expected useful life of 5 years Management expects that the addition of the ride will increase net annual cash flows from operations by 150 000 Finally, it is expected that the ride will be sold at the end of 5 years to an independent fair operator for 50 000 The company's cost of capital is 10 Calculate the net present value of this investment Use the information below to answer questions 10 and 11 Suppose your manager has asked you to evaluate two investment opportunities that your company is considering Using the information below, evaluate these two investments using the net present value method As a result of your evaluation, will you need to make a recommendation to your manager about the relative attractiveness of these investments Project A B Cost of Investment 3 000 000 2 000 000 Useful life of investment 4 4 Estimted residual value 500 000 0 Expected annual cash flows 900 000 1 100 000 Cost of capital 5 10 10 Calculate the net present value for each investment 11 Based on your calculations above, briefly explain which investment is the most attractive one for your company and why Use the information below to answer questions 12 to 15 Fabulous Films is reviewing several screenplays in selecting the next film that it will produce Each film will generate (cash) revenues each year from different sources In the first year, revenues will be generated from box office ticket sales and, in subsequent years, from licensing fees for TV broadcast, pay per view fees, DVD sales and so on Of course various expenses will also be incurred Besides the initial cost of production, there will be subsequent (cash) expenditures related to the marketing and distribution of each film Relevant data for each film project are provided in the table below Film Project Cat Farm Best Friends Forever Ashley Garfield Cost of Production 30 000 000 20 000 000 50 000 000 Cost of capital 5 7 10 Year 1 Expected net cash flows 11 000 000 10 500 000 32 000 000 Year 2 Expected net cash flows 9 000 000 6 000 000 20 000 000 Year 3 Expected net cash flows 7 000 000 5 000 000 8 000 000 Year 4 Expected net cash flows 5 000 000 3 000 000 5 000 000 12 Calculate the NPV of the film, Cat Farm 13 Calculate the NPV of the film, Best Friends Forever 14 Calculate the NPV of the film, Ashley and Garfield A Love Story 15 Based on your calculations, which film do you believe Fabulous Films should produce Briefly explain your decision Suppose that, when you were born, your parents set up a special savings account to help pay for your future studies Now that you are about to graduate from high school, your parents inform you that you may withdraw $14,000 from this account each year for 6 years Calculate the present value of this stream of payments (preferably using the PVOA) The applicable interest rate is 3,5 , compounded annually

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Calculate the geometric mean of the following percent increases:8, 12, 14, 26, and 4. Calculate the geometric mean of the following percent increases:-2, 8, 6,

Calculate the geometric mean of the following percent increases:8, 12, 14, 26, and 4.

Calculate the geometric mean of the following percent increases:-2, 8, 6, 4, -10, and 8.

The Consumer Price Index is reported monthly by the U.S. Bureau of Labor Statistics. It reports the change in prices for a market basket of goods from one period to another. The index for 2004 was 148,2. By 2016 it had increased to 200,6. What was the geometric mean annual increase for the period?

Circulation of the weekly Nrnberg student newspaper, The Notorious N.B.G., increased from 12.300 issues per year in 2012 to 52.500 in 2015. Find the geometric mean annual percent increase.

Use the information below to answer questions 15, 16 and 17

The percent increase in sales for the last four years at Blickpunkt Pop were:

4,91; 5,75; 8,12; and 21,60.

Calculate the geometric mean percent increase.

Calculate the arithmetic mean percent increase.

Is the arithmetic mean equal to or greater than the geometric mean?

Homework exercises: Net Present Value

Use the information below to answer question 8

Universal Studios is considering an acquisition of the smaller German company X-Verleih AG. A due diligence report has suggested that a price of 50 million would be a reasonable price for Universal to pay for X-Verleih. Universal executives have estimated that they could generate average annual cash flows from this acquisition of 6,75 million per year over a 10 year period. At the end of the 10 years, Universal will need to make new estimates about the future prospects of the acquired company and the value of the related assets. Currently, Universal's management team is basing its calculations on the conservative assumption that the residual value of the smaller firm's assets at the end of 10 years will be zero. In order to raise the cash needed to finance this acquisition, Universal anticipates a cost of capital of 12%.

What is the NPV of this acquisition? Should Universal proceed with or abandon its plans to acquire X-Verleih?

Use the information below to answer question 9

Fun Time Corporation operates amusement parks. The company is considering investing in a new ride. The ride would cost 450.000 and has an expected useful life of 5 years. Management expects that the addition of the ride will increase net annual cash flows from operations by 150.000. Finally, it is expected that the ride will be sold at the end of 5 years to an independent fair operator for 50.000. The company's cost of capital is 10%.

Calculate the net present value of this investment.

Use the information below to answer questions 10 and 11

Suppose your manager has asked you to evaluate two investment opportunities that your company is considering. Using the information below, evaluate these two investments using the net present value method. As a result of your evaluation, will you need to make a recommendation to your manager about the relative attractiveness of these investments.

Project

Cost of Investment

3.000.000

2.000.000

Useful life of investment

Estimted residual value

500.000

Expected annual cash flows

900.000

1.100.000

Cost of capital

10%

10.Calculate the net present value for each investment.

11.Based on your calculations above, briefly explain which investment is the most attractive one for your company and why.

Use the information below to answer questions 12 to 15

Fabulous Films is reviewing several screenplays in selecting the next film that it will produce. Each film will generate (cash) revenues each year from different sources. In the first year, revenues will be generated from box office ticket sales and, in subsequent years, from licensing fees for TV broadcast, pay-per-view fees, DVD sales and so on. Of course various expenses will also be incurred. Besides the initial cost of production, there will be subsequent (cash) expenditures related to the marketing and distribution of each film. Relevant data for each film project are provided in the table below:

Film Project

Cat Farm

Best Friends Forever

Ashley & Garfield

Cost of Production

30.000.000

20.000.000

50.000.000

Cost of capital

10%

Year 1: Expected net cash flows

11.000.000

10.500.000

32.000.000

Year 2: Expected net cash flows

9.000.000

6.000.000

20.000.000

Year 3: Expected net cash flows

7.000.000

5.000.000

8.000.000

Year 4: Expected net cash flows

5.000.000

3.000.000

5.000.000

12.Calculate the NPV of the film, "Cat Farm"

13.Calculate the NPV of the film, "Best Friends Forever"

14.Calculate the NPV of the film, "Ashley and Garfield: A Love Story"

15.Based on your calculations, which film do you believe Fabulous Films should produce? Briefly explain your decision.

Suppose that, when you were born, your parents set-up a special savings account to help pay for your future studies. Now that you are about to graduate from high school, your parents inform you that you may withdraw $14,000 from this account each year for 6 years.Calculate the present value of this stream of payments (preferably using the PVOA).The applicable interest rate is 3,5%, compounded annually.