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e Value t in a checking account (no inter You can assume that the withdrawals (one per year) will si ntil spent. The couple will
e Value t in a checking account (no inter You can assume that the withdrawals (one per year) will si ntil spent. The couple will use the account to cover the monthly shortfalls. 3 5. Pres ent values Your firm's geologists have discovered a small oil field in New York Westchester Co firs unty. The field is forecasted to produce a cash flow of C1 = $2 million in the t year. You estimate that you could earn an expected return of r-l 2% from investin stocks with a similar degree of ri sk to your oil field. Therefore, 12% is the oppor tunity cost of capital. What is the present value? The answer, of course, depends on what happens to the cash flows after the first year. Calculate present value for the following cases: a. The cash flows are forecasted to continue forever, with no expected growth or decline. b. The cash flows are forecasted to continue for 20 years only, with no expected grow th decline during that period. C. The cash flows are forecasted to continue forever, increasing by 3% per year because of inflation d. The cash flows are forecasted to continue for 20 years only, increasing by 3% per year because of inflation
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