Question
I am currently working on a practice test for my finance class and needed help solving the following problem(s). 1) A sports team in an
I am currently working on a practice test for my finance class and needed help solving the following problem(s).
1) A sports team in an effort to solve the salary cap problem has offered a player a contract of $1 million dollars a year for the next season with the payments growing at 7% per year for the next 25 years. The player believes the discount rate for such payments is 13%. What is the value today of taking this contract?
2) As an excellent student in environmental ecology you have been awarded the "Clean Effluent Prize" by state agency. You (or your estate) are to receive $300 forever from the state, or the agency will allow you to choose $400 per year over the next 25 years. The market rate of interest is 5%. What is the value of each of the two options respectively?
3) The potential owner/managers of the yet to be formed new In-Line Blade Company are evaluating the prospects for the business. The new equipment is expected to be $5.2 million in year 0 and have after-tax cash flows of $400,000 for the first two years, $750,000 in the next two years, and $1,200,000 per year thereafter indefinitely. The owners estimate that they require a 15% rate of return. What is the net present value of the In-Line Blade Company; should they go forward with the investment?
I have the answers available to me, but based off my notes from class the professor did not really go over the formulas used to calculate the problems and how it would be calculated on an HP !0bii+ financial calculator
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