Healthcare Financial Management

1 A. Find the following values for a lump sum assuming annual compounding:

a. The future value of $500 invested at 8 percent for one year

b. The future value of $500 invested at 8 percent for five years

c. The present value of $500 to be received in one year when the opportunity cost rate is

8 percent.

d. The present value of $500 to be received in five years when the opportunity cost rate is 8 percent.

B. Find the following values assuming a regular, or ordinary, annuity:

a. The present value of $400 per year for ten years at 10 percent

b. The future value of $400 per year for ten years at 10 percent

c. The present value of $200 per year for five years at 5 percent

d. The future value of $200 per year for five years at 5 percent

C. Consider an uneven cash flow stream:

Year Cash Flow

0 $2,000

1 2,000

2 0

3 1,500

4 2,500

5 4,000

a. What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10 percent?

b. What is the value of the cash flow stream at the end of Year 5 if the cash flows are invested in an account that pays 10 percent annually?

c. What cash flow today (Year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of Year 5? (Assume that the cash flows for Years 1 through 5 remain the same.)