Question
In: Finance
Starting from year 1, Project A offers to pay you $500 every year for 10 years,...
- Starting from year 1, Project A offers to pay you $500 every year for 10 years, whereas Project B offers to pay you $520 for the first year and a yearly increased amount for the next 8 years after year 1. Project B’s payment in year t+1 will be 2% higher than its payment in year t. In year 0, Project A costs $2200 while Project B costs $2250. If the discount rate for Project A is 10% and for Project B is 12%, which one of these two investment opportunities would you pick?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You invest in a project that will pay you $500 per year for 5 years and then pays $750 per year for the following 10 years
You invest in a project that will pay you $500 per year for 5 years and then pays $750 per year for the following 10 years (assume that all payments are made at the end of the year). You require a 6% rate of return on this type of investment. Give your return requirement, what is the maximum amount that you would be willing to pay today for the cash flow stram associated with this project? Round only your final...
Investment A offers to pay you $10,000 per year for 10 years while Investment B offers...
Investment A offers to pay you $10,000 per year for 10 years
while Investment B offers to pay you $15,000 per year for 6
years.
a. If the annual interest rate (compounded annually) is 10%,
which investment is more valuable?
b. Does your answer change if the annual interest rate
(compounded annually) is 5%?
c. At what interest rate are the two investments equally
attractive?
Your bank offers you a 10-year loan, with annual payments of $10,000 starting 1 year from...
Your bank offers you a 10-year loan, with annual payments of
$10,000 starting 1 year from today. If the annual interest rate is
6.7%, compounded annually, what is the principal amount of the
loan?
Investment X offers to pay you $7,100 per year for 10 years, whereas Investment Y offers...
Investment X offers to pay you $7,100 per year for 10 years,
whereas Investment Y offers to pay you $8,200 per year for 8
years.
Requirement 1:
(a)
Assume the discount rate is 8 percent, what is the present value
of these cash flows? (Do not include the dollar signs ($).
Enter rounded answers as directed, but do not use the rounded
numbers in intermediate calculations. Round your answers to 2
decimal places (e.g., 32.16).)
Present value
Investment X
$ ...
You anticipate having to pay $30,000 per year for your child’s college education starting 10 years...
You anticipate having
to pay $30,000 per year for your child’s college education starting
10 years from now. You plan to finance four years of college by
making quarterly deposits in a savings account starting now. The
final deposit is made three months prior to the first college
payment, for a total of 40 deposits. Each annual college payment is
made in full at the beginning of the school year.
If the savings account
earns 8% per annum convertible quarterly,...
10. You are offered an annuity that will pay you $200,000 once every year, at the...
10. You are offered an annuity that will pay you $200,000 once
every year, at the end of each year, for 25 years (i.e. the first
payment will arrive one year from now, the last payment will arrive
25 years from now). Suppose your annual discount rate is i= 5.25%,
how much are you willing to pay for this annuity? Hint: this is the
same as the present value of an annuity.
You are considering a project that costs $500 to invest in today, and will pay you $100 next year, $50 in two years, and $100 in three years.
You are considering a project that costs $500 to invest in today, and will pay you $100 next year, $50 in two years, and $100 in three years. The cash inflow will grow at a constant rate of 3% per year after year 3, and you will receive cash inflows for 25 years (total including the first three CFs). Your discount rate is 14%. What is the NPV of the project? Also, what would the NPV be if the cash...
You are considering a project that costs $500 to invest in today, and will pay you $100 next year, $50 in two years, and $100 in three years.
You are considering a project that costs $500 to invest in today, and will pay you $100 next year, $50 in two years, and $100 in three years. The cash inflow will grow at a constant rate of 3% per year after year 3, and you will receive cash inflows for 25 years (total including the first three CFs). Your discount rate is 14%. What is the NPV of the project? Also, what would the NPV be if the...
You are due to receive $500 every 3 months from your parents starting 3 months from...
You are due to receive $500 every 3 months from your parents
starting 3 months from the day you were born. If the three-month
interest rate is 0.2%, what is the value of these payments on your
18th birthday?
john wishes to pay $1000 a year for 3 years, starting 5 years from today. interest...
john wishes to pay $1000 a year for 3 years, starting 5 years from
today. interest rates are forecast at 2% compounded monthly over
the next two years and 4% compounded monthly there after. how much
must he set aside today?
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