In: Finance
1. Suppose that one year from now you receive $450. At the end of the next nine years you receive a payment that is 2% larger than the prior year. If the cost of capital is 11% what is this stream of cash flows worth today?
2. Suppose that one year from now you will receive $400 and that at the end of every year thereafter you will receive a payment that is 1% larger than the prior payment. If the cost of capital is 12% what is this stream of cash flows worth today?
3. Suppose that one year from now you will receive $400. At the end of each of the next four years you will receive a payment that is 3% bigger than the prior payment. Following year five you will receive a payment at the end of every year that is 1% larger than the prior payment. If the cost of capital is 7% what is the this stream of cash flows worth today?
1.
11.00% | ||
Cash flows | Year | Discounted CF |
- | 0 | 0.00 |
450.00 | 1 | 405.41 |
459.00 | 2 | 372.53 |
468.18 | 3 | 342.33 |
477.54 | 4 | 314.57 |
487.09 | 5 | 289.07 |
496.84 | 6 | 265.63 |
506.77 | 7 | 244.09 |
516.91 | 8 | 224.30 |
527.25 | 9 | 206.11 |
537.79 | 10 | 189.40 |
present worth = 2,853.45
2.
worth of this infinite cash flow = 400/(0.12 - 0.01) = 3,636.36
3.
7.00% | ||
Cash flows | Year | Discounted CF |
- | 0 | 0.00 |
400.00 | 1 | 373.83 |
412.00 | 2 | 359.86 |
424.36 | 3 | 346.40 |
437.09 | 4 | 333.45 |
450.20 | 5 | 320.99 |
7,578.43 | 5 | 5403.31 |
present worth = 7,137.85