Question

In: Finance

4) Assume that your required rate of return is 12 percent and you are given the following...

4) Assume that your required rate of return is 12 percent and you are given the following stream of cash flows:

Year Cash Flow

0 $10,000

1 $15,000

2 $15,000

3 $15,000

4 $15,000

5 $20,000

If payments are made at the end of each period, what is the present value of the cash flow stream?

A. $66,909

B. $57,323

C. $61,815

D. $52,345

show how to calculate it by financial calculator

Expert Solution

Answer is A. $66,909

Stepwise approach to calculate NPV in a Financial calculator (BA II Plus Financial Calculator)

Step 1: Always begin by clearing the Cash Flow worksheet. To do so:

Press [CF] to turn the CF worksheet on.

Press [2nd] CLR Work Quit

Step 2: Press [CF]. The display should show: CF0= 0.00000.

Step 3: Type the numeric amount of the cash flow for time period, which would be 10000 here. Press [Enter].

Step 4: Press the down arrow key to display C01. Type in 15000, which is the cash amount for period 1, then press [Enter]. Press the down arrow key to display F01. Press [Enter] to accept the default amount of 1.00000.

Step 5: Press the down arrow key to display C02. Type in 15000, which is the cash amount for period 2, then press [Enter]. Press the down arrow key to display F02. Press the down arrow key again to accept F02, and to move to the next field which will display as C03.

Step 6: Type in 15000, which is the cash amount for period 3, then press [Enter]. Press the down arrow key to display F03. Press the down arrow key again to accept F03, and to move to the next field which will display as C04.

Step 7: Type in 15000, which is the cash amount for period 4, then press [Enter]. Press the down arrow key to display F04. Press the down arrow key again to accept F04, and to move to the next field which will display as C05.

Step 8: Type in 20000, which is the cash amount for period 5, then press [Enter]. Press the down arrow key to display F05. Press the down arrow key again to accept F05.

Step 9: Once all cash flows are inputted, use the up and down arrow keys to scroll through the Cash Flow worksheet to verify your input.

Step 10: Press [NPV] to display I = 0.0000. Enter the required rate of return 12. Press [Enter]. Press the down arrow key, then press [Cpt] to display the dollar amount of the NPV, which is $66,609.

jeff jeffy answered 2 years ago

Assume that your required rate of return is eight percent and you are given the following...

Assume that your required rate of return is eight percent and you are given the following stream of cash flows: Year Cash Flow 1 $434 2 $696 3 $767 4 $646 5 $862 6 $397 If payments are made at the end of each period, what is the present value of the cash flow stream? Select one: a. $2,809.88 b. $2,668.92 c. $42,344.29 d. $34,434.92 e. $2,919.10

1. Suppose that your required rate of return on a duplex is 12 percent. You are...

1. Suppose that your required rate of return on a duplex is 12 percent. You are shown one such property which has an asking price of $30,000. The sales representative shows you the following cash flow projections for a holding period of 6 years: Year 1: Year 2: Year 3: Year 4: Year 5: Year 6: $4,500 $5,000 $6,000 $3,000 $8,000 $20,000 a. Should you buy the investment? b. What would be your expected rate of return? 2. What is...

Assume the following: • the investor's required rate of return is 18 percent, • the expected...

Assume the following: • the investor's required rate of return is 18 percent, • the expected level of earnings at the end of this year (E1) is $9, • the retention ratio is 55 percent, • the return on equity (ROE) is 19 percent (that is, it can earn 19 percent on reinvested earnings), and • similar shares of stock sell at multiples of 5.960 times earnings per share. QUESTIONS: a. What is the expected growth rate for dividends? (?)%...

The T-bill rate is 4 percent and the expected return on the market is 12 percent....

The T-bill rate is 4 percent and the expected return on the market is 12 percent. a. What projects have a higher expected return than the firm’s 12.5 percent cost of capital? b. Which projects should be accepted? Project Beta IRR W 0.80 10.2% X 0.90 11.4% Y 1.10 12.6% Z 1.35 15.1%

(Common stock valuation) Assume the following: bullet the investor's required rate of return is 14 percent,...

(Common stock valuation) Assume the following: bullet the investor's required rate of return is 14 percent, bullet the expected level of earnings at the end of this year (Upper E 1) is $6, bullet the retention ratio is 40 percent, bullet the return on equity (ROE) is 16 percent (that is, it can earn 16 percent on reinvested earnings), and bullet similar shares of stock sell at multiples of 7.895 times earnings per share. Questions: a. Determine the expected growth...

The risk free rate is 4%, and the required return on the market is 12%. What...

The risk free rate is 4%, and the required return on the market is 12%. What is the required return on an asset with a beta of 1.5? What is the reward/risk ratio given the required rate of return from (a)? What is the required return on a portfolio consisting of 40% of the asset above and the rest in an asset with an average amount of systematic risk? (hint: asset with an average amount of systematic risk has beta...

A stock has a required return of 12%; the risk-free rate is 4%; and the market...

A stock has a required return of 12%; the risk-free rate is 4%; and the market risk premium is 5%. What is the stock's beta? Round your answer to two decimal places. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. If the stock's beta is greater than 1.0, then the change in required rate of return will be less than...

Beta and required rate of return A stock has a required return of 12%; the risk-free...

Beta and required rate of return A stock has a required return of 12%; the risk-free rate is 2.5%; and the market risk premium is 3%. What is the stock's beta? Round your answer to two decimal places. B. If the market risk premium increased to 9%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. 1. If the stock's beta is equal to 1.0, then the change in...

Assume that the risk-free rate of return (Krf) is 3% and the required rate of return...

Assume that the risk-free rate of return (Krf) is 3% and the required rate of return on the market (Km) is 8%. A given stock, say, Caterpillar (CAT) has a beta coefficient of 1.03. If the dividend per share during the coming year, meaning D1, is $4.12 and g = 3.50%, what is the current intrinsic value of the stock? Exactly how much was D0? How long will it take for the dividend to double, given the growth rate, approximately?...

Assume the following: • the investor's required rate of return is 15 percent, • the expected level of earnings at the end of this year (E1) is $5

Assume the following:• the investor's required rate of return is 15 percent,• the expected level of earnings at the end of this year (E1) is $5• the retention ratio is 50 percent,• the return on equity (ROE) is 20 percent? (that is, it can earn 20 percent on reinvested earnings), and• similar shares of stock sell at multiples of 10.000 times earnings per share. Questions:a. Determine the expected growth rate for dividends.b. Determine the price earnings ratio (P/E1).c. What is...