Question

For the Week 5 Problem Set, show all work in an Excel book, labeling each item by the problem number. Save the file in the format flastname_Unit_5_Learning_Activity.xlsx, where flastname is your first initial and your last name, and submit it to the appropriate Dropbox. For full credit, be sure to use appropriate formulas to solve each exercise or problem.

Chapter 7 (page 149)

1. Calculate the present value (PV ) of a cash inflow of $500 in one year, and a cash inflow of $1,000 in 5 years, assuming a discount rate of 15%.

2. Calculate the present value (PV ) of an annuity stream of 5 annual cash flows of $1,200, with the first cash flow received in one year, assuming a discount rate of 10%.

3. What is the present value of a perpetual stream of annual cash flows of $100, with the first cash flow to be received in one year, assuming a discount rate of 8%?

4. What is the present value of a perpetual stream of annual cash flows, with the first cash flow of $100 to be received in one year, and with all subsequent cash flows growing at a rate of 3%, assuming a discount rate of 8%?

Additional Problems

A1. If you deposit $12,000 in a bank account that pays 10% interest annually, how much will be in your account after 7 years?

A2. What is the present value of a security that will pay $10,000 in 20 years at an interest rate of 8%?

A3. Find the future value of the following ordinary annuities: a. $600 per year for 10 years at 10% b. $300 per year for 5 years at 5% c. $600 per year for 5 years at 0%

A4. Find the present value of the following ordinary annuities: a. $600 per year for 10 years at 10% b. $300 per year for 5 years at 5% c. $600 per year for 5 years at 0%

Foerster, S. (2014) Financial Management: Concepts and Applications. Prentice Hall. VitalBook file.

Answer 1

1

Discount rate	15.000%
Year	0	1	2	3	4	5
Cash flow stream	0	500	0	0	0	1000
Discounting factor	1.000	1.150	1.323	1.521	1.749	2.011
Discounted cash flows project	0.000	434.783	0.000	0.000	0.000	497.177
NPV = Sum of discounted cash flows
NPV A =	931.96
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

2

Discount rate	10.000%
Year	0	1	2	3	4	5
Cash flow stream	0	1200	1200	1200	1200	1200
Discounting factor	1.000	1.100	1.210	1.331	1.464	1.611
Discounted cash flows project	0.000	1090.909	991.736	901.578	819.616	745.106
NPV = Sum of discounted cash flows
NPV A =	4548.94
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

3

Present value = cash flow/interest rate = 100/0.08=1250

4

Present value = cash flow/(interest rate-growth rate) = 100/(0.08-0.03)=200

please ask remaining parts separately