A firm has steady inflows and periodic outflows and wants to usethe Beranek model to manage its cash. Cash outflows occur onceper month; the amount of the next outflow is $2.16 million. It costs$200 to make an investment or a disinvestment. The yearly interestrate is 8 percent. Calculate:a. The optimal number of transactions.b. The amount of the periodic investments.c. The amount of the final withdrawal.d. The net profit from this strategy.

Beranek model : It is based upon the assumption that cash inflows are greater than cash outflows ,…

Answered: A firm has steady inflows and periodic…

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

Problem 1PS

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A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the concept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years: Year 1 $400,000 Year 2 $20,000 Annual Cash Flows Year 3 Year 4 $180,000 $300,000 O $600,000 O $1,975,000 O $1,395,097 O $1,775,000 Year 5 $350,000 Year 6 $725,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 9%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? Identify whether the situations described in the following table are examples of uneven cash flows or annuity payments: Description Debbie has been donating 10% of her salary at the end of every year to charity for the last three years. Her salary increased by 15% every year in the last three…
You invest in a company which expects to pay you the following amounts in return each year. Year 1: $1,100, Year 2: $2,100, Year 3: $1,600, Year 4: $2,100, and Year 5 $1,500. If an annual interest rate is 5 percent, what is the present value of this uneven cash flow stream? $7,883 $7,807 $7,563 $7,237
A company must make a choice between two investment alternatives. Alternative 1 will return the company $33,000 at the end of two years and $70,000 at the end of seven years. Alternative 2 will return the company $8,000 at the end of each of the next seven years. The company normally expects to earn a rate of return of 10% on funds invested. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion. The present value of Alternative 1 is S (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The present value of Alternative 2 is S (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.) The preferred alternative is Alternative 1. Alternative 2.
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solve step by step with expl
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A firm expects to make payments of 1.1, 1.5, 1.2, 1.4 and 1.9 million for a particular supply over each of the next 5 years. What constant annual payment is this equivalent to if the annual rate is 10%? That is, what is the time-value weighted average of this mixed-cash flow stream?
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