Question

#2. Farmer Brown sold the mineral rights on his farm to Exxon Corporation in exchange for payments of $14,000 per year in perpetuity. Using a discount rate of 6.5 percent, compute the present value of this arrangement

#3. Investment X has the following projected cash flows over the next four years:

Year	Amount
1	$5700
2	$4900
3	$4300
4	$2000

If the opportunity cost for an investment of this level of risk is 9.1%, what is the most that you should be willing to pay for it?

#4. An investment promises cash inflows in years 1, 2, 3 and 4 of $5,218, $5,303, $15,870, and $17,604 respectively. If your required rate of return is 6.7%, what is the present value of the cash inflows for this project? (to the nearest dollar)

#5. An investment promises cash flows in years 1, 2, and 3 of $39,000. In years 4 and 5, it will pay $61,000. If your required rate of return is 9.4 percent, what is that worth today?

#6. Using a discount rate of 5.7 percent, compute the present value of the following cash flows to the nearest dollar:

Year	Cash Flow
1	$8,613
2	$9,169
3	$15,300
4	$19,344
5	$9,378

Answer 1

2. Present Value = Perpetuity Amount / Discount Rate

=14000/6.5%

= $ 215,384.62

Answer : $ 215,384.62

3. Present Value =5700*1/(1.091)^1+4900*1/(1.091)^2+4300*1/(1.091)^3+2000*1/(1.091)^4

= $ 14,064.17

4. Present Value =5218*1/(1.067)^1+5303*1/(1.067)^2+15870*1/(1.067)^3+17604*1/(1.067)^4

= $ 36,194

5. Present Value = =39000*1/(1.094)^1+39000*1/(1.094)^2+39000*1/(1.094)^3+61000*1/(1.094)^4+61000*1/(1.094)^5

= $179,532.63

Answer : $179,532.63

6. Present Value = 8613*1/(1.057)^1+9169*1/(1.057)^2+15300*1/(1.057)^3+19344*1/(1.057)^4+9378*1/(1.057)^5

= $ 51,915.92