REAL 204 Time Value of Money Assignment Summer 2023 (2)

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Montclair State University *

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204

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Finance

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Jan 9, 2024

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Uploaded by CoachHummingbirdMaster772

REAL 204 TIME VALUE of MONEY ASSIGNMENT 1. You have just had a tenant sign a lease contract that guarantees you payments of $100,000 at the end of each year for the next five years. What is the present value of these future cash flows assuming an 8% discount rate? $399,271.00 2. Suppose an investor deposits $2500 in an interest-bearing account at her local bank. The account pays 2.5% interest compounded annually. If the investor plans on withdrawing the original principal plus accumulated interest at the end of 7 years, what is the total amount that she should expect to receive assuming interest rates do not change? $2,971.71 3. An investor agreed to sell a warehouse 5 years from now to the tenant who currently rents the space. The tenant will continue to pay $20,000 rent at the end of each year including year five in which he will purchase the building for an additional $150,000. Assuming the investor's required rate of return is 10%, how much is this de al presently worth to the investor who was willing to sell? $168,953.93 4. Assuming that an investor requires a 10% annual yield over the next 12 years, how much would she be willing to pay for the right to receive $20,000 at the end of year 12? $6,372.62 5. The purchase price of an income producing property today is $570,000. After analysis of the expected future cash flows, expected sales price, and expected yield, the investor determines that the future cash flows have a present value (PV) of $580,000. Taking into consideration the price of the property today, what is the net present value (NPV) of this investment opportunity, and should the investor take the deal? 10000 B/c NPV is > 0, the investor should take this deal

6. Suppose an investor is interested in purchasing the following income producing property at a current market price of $450,000. The prospective buyer has estimated the expected cash flows over the next four years to be as follows: Year 1 = $40,000, Year 2 = $45,000, Year 3 = $50,000, Year 4 = $55,000. Assuming that the required rate of return is 12% and the estimated proceeds from selling the property at the end of year four is $500,000, what is the NPV of the project? $142,130.52 7. If someone pays you $1.00 per year for 20 years, what is the present value of the series of future payments discounted at 10% annually? $8.51 8. If you deposit $10.00 at the end of each year for the next 10 years and these deposits earn 10% compounded annually, what will the series of deposits be worth at the end of 10 years? $159.37 9. You are considering the purchase of a small income-producing property for $150,000 that is expected to produce $50,000 of cash flows for four years. Assume your required return is 11%. What is the Net Present Value of this investment opportunity? What is the going-in internal rate of return on this investment? NPV= $5,122.28 IRR= 12.6% 10. You have signed a new lease today to rent office space for five years. The lease payments are fixed at $4,500 per month for years 1 and 2, but rise to $5,500 for years 3 to 5. What is the present value of this lease obligation if the appropriate discount rate is 8% $275,012.38

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