Please answer questions 4, 6, 9

216 CHAPTER 7. THE TIME VALUE OF MONEY PRESENT VALUE (PV): The current value of a cash-flowing asset based on the amount and timing of its projected cash flows. FUTURE VALUE (FV): The value of a cash-flowing asset some time in the future, assuming a compounded rate of interest. MARKET VALUE: The present value of a cash-flowing asset based on its projected future cash flow, factoring in the timing of the cash flow, the risk of the cash flow being generated, and the mix of capital used to finance the deal. HURDLE RATE: An investor's ROI target. WACC: Weighted average cost of capital--that is, the blended cost of the debt and the equity used to finance a deal. INVESTMENT ANALYS18: A process of estimating an asset's current market value, which can then be compared with its cost to acquire or develop. DISCOUNT RATE: The weighted average cost of capital used, as the I/Y in present value calcu- lations. SINGLE SUM (LUMP SUM): A time value of money concept where only a single sum of money is involved in the calculation. ANNUITY: A fixed amount of money received or paid each compounding period for a set period. REGULAR ANNUITY: Fixed amount of money received or paid at the end of each compounding period for a set time. ANNUITY DUE: Same as a regular annuity except the payments occur at the beginning of the compounding period rather than at the end. PERPETUITY: An annuity that yields the same cash flow forever. UNEVEN STREAM OF CASH FLOW: A stream of cash flow where the payments are not the same in all compounding periods. Application Exercises 1. Which is better, a present value of $100 or a future value of $100? Please explain. 2. Define and explain two factors that affect the present value of an asset. 3. In five years, what is the future value of $4,000 if the interest rate is 10% and money is compounded monthly? What is the future value if money is compounded semiannually? 4.) Clark has an investment proposal that invites him to invest $1,000 a year for ten years in a hotel and promises to pay him a return of 11% per year. If Clark agrees, how much will his investment be worth at the end of ten years? 5. What is the maximum amount of money you should pay for an investment today that is projected to yield $8,000 in four years if the market rate of interest is 12% and the money is compounded semiannually? What would be the present value if the money is com- pounded monthly? CONCEPT OF TIME 6. Milton is trying to convince you to invest in his restaurant deal and make ten annual pay- ments of $500, with the first payment due today. If the market rate of interest is 6%, how -much will this investment be worth at the end of ten years? 7. An investment banker is offering a fixed-income investment that guarantees an 8% interest rate. It requires you to make monthly payments, with the first payment due today. If your goal is to have $10,000 in ten years, how much would you need to invest monthly to reach your goal? If you made annual payments with the first payment due today, what would your annual payment need to be for this investment to be worth $10,000 at the end of the ten- year period? 8. Your restaurant needs some kitchen remodeling, and the proposal for a new dishwasher is $55,000. Your banker will make you a loan at 8% interest compounded monthly over the next five years. What would be your monthly debt service payment to the bank? If your banker required a 10% down payment, how would this affect your monthly payment to the bank? 9. How much would you pay for an investment that promises you $1,500 each year for ten years if the going interest rate in the market is at 6.5%