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1. Oasis Pods has been working on a new sustainable business that uses plastic waste to create standard office pods that can be placed in free spaces in a building. The new office pod technology has now been cleared for manufacture and development. Oasis Pods anticipates the first annual cash flow from the office pods to be €2,000,000, received 2 years from today. Subsequent annual cash flows will grow at 10% in perpetuity. What is the present value of the new technology if the discount rate is 16%?

1. Oasis Pods has been working on a new sustainable business that uses plastic waste to create standard office pods that can be placed in free spaces in a building. The new office pod technology has now been cleared for manufacture and development. Oasis Pods anticipates the first annual cash flow from the office pods to be €2,000,000, received 2 years from today. Subsequent annual cash flows will grow at 10% in perpetuity. What is the present value of the new technology if the discount rate is 16%?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Please read Chapter 5 of Hillier et al (2021) Fundamentals of Corporate Finance and answer the following questions. You should submit your homework to your class teacher via the corresponding moodle link. Be prepared to participate in class! 1. Oasis Pods has been working on a new sustainable business that uses plastic waste to create standard office pods that can be placed in free spaces in a building. The new office pod technology has now been cleared for manufacture and development. Oasis Pods anticipates the first annual cash flow from the office pods to be €2,000,000, received 2 years from today. Subsequent annual cash flows will grow at 10% in perpetuity. What is the present value of the new technology if the discount rate is 16%? 2. The Coop Bank charges 13.2% compounded monthly on its business loans. First Direct Bank charges 13.5% compounded semi-annually. As a potential borrower, which bank would you choose for a new loan? 3. A 25-year fixed-rate mortgage has monthly payments of €717 per month and a mortgage interest rate of 6.14% per year compounded monthly. If a buyer purchases a home with the cash proceeds of the mortgage loan plus an additional 20% deposit, what is the purchase price of the home? Assume that the additional deposit amount is 20% of the mortgage loan amount. 4. Challenge question: You are planning to save for retirement over the next 40 years. To do this, you will invest £1,000 a month in a share account and £1,000 a month in a bond account. The return of the share account is expected to be 6%, and the bond account will pay 2%. When you retire, you will combine your money into an account with a 5% annual return. How much can you withdraw each month from your account, assuming a 25-year withdrawal period? Hint: To calculate your accumulated wealth (FV) in 40 years you may find it easier to first calculate the present value (PV) of your monthly investments (using the annuity formula) and then compound the PV over 40 years.
Transcribed Image Text:Please read Chapter 5 of Hillier et al (2021) Fundamentals of Corporate Finance and answer the following questions. You should submit your homework to your class teacher via the corresponding moodle link. Be prepared to participate in class! 1. Oasis Pods has been working on a new sustainable business that uses plastic waste to create standard office pods that can be placed in free spaces in a building. The new office pod technology has now been cleared for manufacture and development. Oasis Pods anticipates the first annual cash flow from the office pods to be €2,000,000, received 2 years from today. Subsequent annual cash flows will grow at 10% in perpetuity. What is the present value of the new technology if the discount rate is 16%? 2. The Coop Bank charges 13.2% compounded monthly on its business loans. First Direct Bank charges 13.5% compounded semi-annually. As a potential borrower, which bank would you choose for a new loan? 3. A 25-year fixed-rate mortgage has monthly payments of €717 per month and a mortgage interest rate of 6.14% per year compounded monthly. If a buyer purchases a home with the cash proceeds of the mortgage loan plus an additional 20% deposit, what is the purchase price of the home? Assume that the additional deposit amount is 20% of the mortgage loan amount. 4. Challenge question: You are planning to save for retirement over the next 40 years. To do this, you will invest £1,000 a month in a share account and £1,000 a month in a bond account. The return of the share account is expected to be 6%, and the bond account will pay 2%. When you retire, you will combine your money into an account with a 5% annual return. How much can you withdraw each month from your account, assuming a 25-year withdrawal period? Hint: To calculate your accumulated wealth (FV) in 40 years you may find it easier to first calculate the present value (PV) of your monthly investments (using the annuity formula) and then compound the PV over 40 years.
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