An asset is projected to generate 12 annual cash flows of $13,000 starting 4 years from...

An asset is projected to generate 12 annual cash flows of $13,000 starting 4 years from today. If the discount rate is 4.8%, how much is this asset worth today? Round to the nearest cent.

Solutions

Expert Solution

PV of Annuity:

Annuity is series of cash flows that are deposited at regular intervals for specific period of time. Here cash flows are happened at the end of the period. PV of annuity is current value of cash flows to be received at regular intervals discounted at specified int rate or discount rate to current date.

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
r - Int rate per period
n - No. of periods

PV of Annuity after 3 Years:

CFs from Year 4 discounted will become PV of Annuity at Year 3.

Particulars	Amount
Cash Flow	$ 13,000.00
Int Rate	4.8000%
Periods	12

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
= $ 13000 * [ 1 - [(1+0.048)^-12]] /0.048
= $ 13000 * [ 1 - [(1.048)^-12]] /0.048
= $ 13000 * [ 1 - [0.5697]] /0.048
= $ 13000 * [0.4303]] /0.048
= $ 116533.05

PV Today:

Particulars	Amount
Future Value	$ 116,533.05
Int Rate	4.8000%
Periods	3

Present Value = Future Value / ( 1 + r )^n
= $ 116533.05 / ( 1 + 0.048 ) ^ 3
= $ 116533.05 / ( 1.048 ) ^ 3
= $ 116533.05 / 1.151
= $ 101243.06

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

An asset is projected to generate 12 annual cash flows of $7,000 starting 5 years from...

An asset is projected to generate 12 annual cash flows of $7,000 starting 5 years from today. If the discount rate is 11%, how much is this asset worth today? Round to the nearest cent. [Hint: This is a deferred annuity. Remember the rule about where on the timeline PV annuity goes when you have a deferred annuity.]

An asset is projected to generate 10 annual cash flows of $9,000starting 4 years from...

An asset is projected to generate 10 annual cash flows of $9,000 starting 4 years from today. If the discount rate is 12%, how much is this asset worth today? Round to the nearest cent. [Hint: This is a deferred annuity. Remember the rule about where on the timeline PV annuity goes when you have a deferred annuity.]

A project will generate annual cash flows of $237,600 for each of the next three years,...

A project will generate annual cash flows of $237,600 for each of the next three years, and a cash flow of $274,800 during the fourth year. The initial cost of the project is $746,600. What is the internal rate of return of this project? Multiple Choice 10.60% 11.26% 9.93% 11.92% 12.91%

A project will generate annual cash flows of $237,600 for each of the next three years,...

A project will generate annual cash flows of $237,600 for each of the next three years, and a cash flow of $274,800 during the fourth year. The initial cost of the project is $765,600. What is the internal rate of return of this project?

A project will generate annual cash flows of $237,600 for each of the next three years,...

A project will generate annual cash flows of $237,600 for each of the next three years, and a cash flow of $274,800 during the fourth year. The initial cost of the project is $749,600. What is the internal rate of return of this project?

You are running a small manufacturing process that has projected cash flows of -$13,000 in year...

You are running a small manufacturing process that has projected cash flows of -$13,000 in year one, $4,000 in year 2, $5000 in year 3, -$3,000 in year 4, $6,000 in year 5, and $7,000 in year 6, what is the interest rate that gives a net present value of zero. For information, In year four, you were required to make some upgrades to the process and that forced the negative $3,000. (Hint: Take the cash flow at the end...

An investment is expected to generate annual cash flows forever. The first annual cash flow is...

An investment is expected to generate annual cash flows forever. The first annual cash flow is expected in 1 year and all subsequent annual cash flows are expected to grow at a constant rate annually. We know that the cash flow expected in 3 years from today is expected to be $9,000 and the cash flow expected in 7 years from today is expected to be $10,000. What is the cash flow expected to be in 5 years from today?

An investment is expected to generate annual cash flows forever. The first annual cash flow is...

An investment is expected to generate annual cash flows forever. The first annual cash flow is expected in 1 year and all subsequent annual cash flows are expected to grow at a constant rate annually. We know that the cash flow expected in 2 year(s) from today is expected to be 1,860 dollars and the cash flow expected in 8 years from today is expected to be 3,140 dollars. What is the cash flow expected to be in 5 years...

A company is projected to generate free cash flows of $100 million per year for the...

A company is projected to generate free cash flows of $100 million per year for the next 3 years (FCFF1, FCFF2 and FCFF3). Thereafter, the cash flows are expected to grow at a 3.0% rate in perpetuity. The company's cost of capital is 7.0%. What is your estimate for its enterprise value? Answer in millions, rounded to one decimal place (e.g., $213,456,789 = 213.5).

A company is projected to generate free cash flows of $164 million per year for the...

A company is projected to generate free cash flows of $164 million per year for the next 3 years (FCFF1, FCFF2 and FCFF3). Thereafter, the cash flows are expected to grow at a 2.0% rate in perpetuity. The company's cost of capital is 10.2%. What is your estimate for its enterprise value? Answer in millions, rounded to one decimal place (e.g., $213,456,789 = 213.5).

Subjects