Question
In: Economics
1. Commuter airways is considering leasing a small aircraft to ferry passengers from 3 nearby towns...
1. Commuter airways is considering leasing a small aircraft to ferry passengers from 3 nearby towns to its aircraft fleet of larger planes in a major city. Management has developed the following cash flows for a six- year lease.
Start of year Net cash flow
0 -188,000
1 -32,000
2 60,000
3 110,000
4 120,000
5 135,000
a) If the discount rate is ten percent, use the NPV function of these cash flows to determine the present value.
b) If these cash flows are received at the end of each year, what is the present value now?
2. Suppose you put $800 into a savings account 7 year Certificate of Deposit that pays 2.2% annual interest. What is the maturity value of that account? Use the FV function to answer the question.
3. Suppose you receive a payment of $1000 a year for each of the next fifteen years (this is an annuity). If the discount interest rate is six percent, use the PV function to determine the present value of this payment stream.
4. The capital budgeting director of a corporation is considering investing $2,000,000 in a project that is expected to produce a positive cash flow of $445,000 per year for seven years. What is the project’s internal rate of return? Use the IRR function to answer the problem.
Solutions
Expert Solution
Please rate my answer well. thanks in advance.
| Answer 1: | ||||||
| (a) | Year | Cash flows | PV factor @ 10% | Present value | ||
| A | B | C | B* C | |||
| 0 | (188,000.00) | 1.0000 | (188,000.00) | |||
| 1 | (32,000.00) | 0.9091 | (29,090.91) | |||
| 2 | 60,000.00 | 0.8264 | 49,586.78 | |||
| 3 | 110,000.00 | 0.7513 | 82,644.63 | |||
| 4 | 120,000.00 | 0.6830 | 81,961.61 | |||
| 5 | 135,000.00 | 0.6209 | 83,824.38 | |||
| 80,926.49 | ||||||
| (b) | End of year | Cash flows | PV factor @ 10% | Present value | ||
| 0 | (188,000.00) | 0.9091 | (170,909.09) | |||
| 1 | (32,000.00) | 0.8264 | (26,446.28) | |||
| 2 | 60,000.00 | 0.7513 | 45,078.89 | |||
| 3 | 110,000.00 | 0.6830 | 75,131.48 | |||
| 4 | 120,000.00 | 0.6209 | 74,510.56 | |||
| 5 | 135,000.00 | 0.5645 | 76,203.98 | |||
| 73,569.54 | ||||||
| Answer 2: | ||||||
| Required Future value | equals | 800 *(1.022)^7 | ||||
| 800 * 1.164545 | ||||||
| Maturity value | equals | 931.64 | ||||
| Answer 3: | ||||||
| Payment amount received each year | $1,000 | |||||
| Discount rate | 6% | |||||
| Years | 15 | |||||
| Present value of the payment stream | 1,000 * PVIFA(6%,15) | |||||
| 1,000 * 9.71225 | ||||||
| Present value | equals | 9712.25 | ||||
| Answer 4: | IRR is the rate at which NPV of the project equals zero. | |||||
| so, if IRR = 15%, | ||||||
| NPV = | {4,45,000 * PVAF(15%,7)} - 2000000 | |||||
| (4,45,000 * 4.16042) - 20,00,000 | ||||||
| (148,613.10) | ||||||
| so, if IRR = 13%, | ||||||
| NPV = | {4,45,000 * PVAF(13%,7)} - 2000000 | |||||
| (4,45,000 * 4.42261) - 20,00,000 | ||||||
| (31,938.55) | ||||||
| so, if IRR = 12.5%, | ||||||
| NPV = | {4,45,000 * PVAF(12.5%,7)} - 2000000 | |||||
| (4,45,000 * 4.4923) - 20,00,000 | ||||||
| (926.50) | ||||||
| so, if IRR = 12.485%, | ||||||
| NPV = |
{4
 Rahul Sunny answered 1 year agoRelated SolutionsAn airline company operates commuter flights using an aircraft that can take 20 passengers. During each...An airline company operates commuter flights using an aircraft
that can take 20 passengers. During each flight passengers are
given a hot drink and a Snack Pack that contains a meat sandwich
and a cake. The company is aware that some of their passengers may
be vegetarians and therefore every flight should be stocked with
vegetarian Snack Pack that contains a cheese sandwich in addition
to those contain meat. Given that 5% of the population is
vegetarian, on a fully...
2. The table below gives information on the distance from various nearby towns to the famous...2. The table below gives information on the distance from
various nearby towns to the famous Cupcake Town Lake (distance is
in miles). There is no admission fee. The only cost of visiting
Cupcake Lake is the travel cost, which costs $1/mile. The
researcher estimates the relationship between the number of visits
per capita (per person), x, and the one-way travel cost from the
town in which people live, p. He finds this demand function to be:
x = 30...
A rural clinic hires its staff from nearby cities and towns on a part-time basis. The...A rural clinic hires its staff from nearby cities and towns on a
part-time basis. The clinic attempts to have a general practitioner
(GP), a nurse, and an internist on duty during at least a portion
of each week. The clinic has a weekly budget of $1,200. A GP
charges the clinic $40 per hour, a nurse charges $20 per hour, and
an internist charges $150 per hour. The clinic has established the
following goals, in order of priority: (1)...
The following frequency distribution shows the number of passengers who flew on a small regional aircraft...The following frequency distribution shows the number of
passengers who flew on a small regional aircraft company’s flight
number 1853 for the past 50 days.
Number of passengers
on Flight 1853
Frequency (days)
Relative Frequency
Cumulative
Relative
Frequency
50 to 59
5
60 to 69
13
70 to 79
17
80 to 89
7
90 to 99
6
100 to 109
2
Use this data to construct a relative frequency
and cumulative relative frequency distribution.
Report all of your answers...
Consider a small ferry that can accommodate cars and buses. The toll for cars is $3,...Consider a small ferry that can accommodate cars and buses. The
toll for cars is $3, and the toll for buses is $10. Let X
and Y denote the number of cars and buses, respectively,
carried on a single trip. The joint pmf of X and
Y is given in the table below.
p(x,
y)
y
0
1
2
x
0
0.150
0.060
0.090
1
0.050
0.020
0.030
2
0.100
0.040
0.060
3
0.125
0.050
0.075
4
0.025
0.010
0.015...
1. Boeing just signed a contract to sell a Boeing 787 aircraft to British Airways. British...1. Boeing just signed a contract to sell a Boeing 787 aircraft
to British Airways. British Airways will be billed £26 million
which is payable in one year. The current spot exchange rate is
$1.40/£ and the one-year forward rate is $1.43/£. The annual
interest rate is 6.0% in the U.S. and 5.0% in UK. The premium for a
one-year put or call option with the exercise rate of $1.43/£ is
1%. Boeing is concerned with the volatile exchange rate...
You own a small fleet of commuter airplanes which fly from Atlanta to Birmingham, Alabama. Each...You own a small fleet of commuter
airplanes which fly from Atlanta to Birmingham, Alabama.
Each roundtrip costs you an average
of $3000 for the 300 mile trip (there and back). These costs
include the costs of the pilot, aviation fuel, maintenance of the
aircraft, depreciation of the aircraft, interest on the loan for
the aircraft, annual license and registration fees for the aircraft
and annual fees for the use of airport gates.
A corporation has offered you $2,000
for...
Gainesville Bus Lines (GBL) is considering two alternative buses to transport people from the commuter lot...Gainesville Bus Lines (GBL) is considering two alternative buses
to transport people from the commuter lot to the main campus at
Midwest State University. This bus service will be provided to
students at no cost to them, so this investment will have no
incoming revenue stream. Bus S has an initial cost of $50,000 and
will have annual operating costs of $25,000 per year for three
years. Bus L has an initial cost $75,000 and will have annual
operating costs...
A small town gets its water supply from three nearby lakes, A, B, and C. Sometimes...A small town gets its water supply from three nearby lakes, A,
B, and C. Sometimes in the late summer
the water level in a lake falls below a certain critical level.
When this occurs, there is a risk that the water
from that lake will become polluted with E-Coli. If the water
supply to the town becomes polluted, the
residents are advised to boil their water. If only the water
level at lake A falls below the critical level,...
A regional airline transfers passengers from small airports to a larger regional hub airport. The airline...A regional airline transfers passengers from small airports to a
larger regional hub airport. The airline data analyst was assigned
to estimate the revenue ( in thousands of dollars) generated by
each of the 22 small airports based on two variables: the distance
from each airport ( in miles) to the hub and the population ( in
hundreds) of the cities in which each of the 22 airports is
located. The data is given in the following table.
Airport revenue ...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|