1.) Blossom, Inc., management expects the company to earn cash flows of $11,600, $15,700, $17,800, and...

1.) Blossom, Inc., management expects the company to earn cash flows of $11,600, $15,700, $17,800, and $19,800 over the next four years. If the company uses an 7 percent discount rate, what is the future value of these cash flows at the end of year 4?

2.) Anthony Walker borrowed some money from his friend and promised to repay him $1,270, $1,320, $1,470, $1,610, and $1,610 over the next five years. If the friend normally discounts investment cash flows at 7.5 percent annually, how much did Anthony borrow?

3.) Jennifer Davis is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $2,300 every year in an IRA account, beginning at the end of this year until she reaches the age of 65. If the IRA investment will earn 11.10 percent annually, how much will she have in 40 years, when she turns 65?

4.) Linda Williams is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $4,000 each year in an IRA account until she is 65 at which time she will retire (a total of 40 payments). If Linda invests at the beginning of each year, and the IRA investment will earn 10.70 percent annually, how much will she have when she retires? Assume that she makes the first payment today.

Expert Solution

1

Future Value
Last period=	4
Compounding rate	7.000%
Year	0	1	2	3	4
Cash flow stream	0	11600	15700	17800	19800
Compounding factor	1.311	1.225	1.145	1.070	1.000
Compounded cash flows	0.000	14210.499	17974.930	19046.000	19800.000
FV = Sum of compounded cash flows
FV=	71031.43
Where
Compunding factor =	(1 + rate)^(Last period-Corresponding period in years)
Compounded Cashflow=	Cash flow stream*compounding factor

2


Project
Discount rate	0.075
Year	0	1	2	3	4	5
Cash flow stream	0	1270	1320	1470	1610	1610
Discounting factor	1	1.075	1.155625	1.242297	1.3354691	1.435629
Discounted cash flows project	0	1181.395	1142.239	1183.292	1205.5689	1121.459
NPV = Sum of discounted cash flows
NPV borrowings =	5833.95
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

jeff jeffy answered 1 month ago

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