Question

In: Finance

1. You are planning to take a spring break trip to Canada your senior year. The...


1. You are planning to take a spring break trip to Canada your senior year. The trip is exactly two years away, but you want to be prepared and have enough money when the time comes. Explain how you would determine the amount of money you will have to save in order to pay for the trip.

2. Identify the steps involved in computing the present value when you have multiple cash flows.

Solutions

Expert Solution

1. I will be determining the amount of money I have to save in order to pay for the trip by determination of the overall cost related to the trip and since it is in the future I will be trying to to calculate the present value of the future cash flows and I will be trying to discount through required rate of return and when I will be getting the present value of this money then I will be investing these present value at the required rate of return in order to have a sum of amount at the senior year in order to fund for tour.

Hence I would be applying with present value concept which will be discounting the future stream of cash flows at present

2.(A) I will be determining the multiple cash flows in the beginning

(B) then I will determining the required rate of return in order to discount those cash flows to the present value.

(C) I will be discounting those cash flows at the present value and I will also add the overall present value of the cash flows in order to find out the present value in totality.

(D) I will be deducting the initial investment which will be made at the year zero, in order to arrive at the net present value.

jeff jeffy answered 2 years ago
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