Consider a project with a 15 year time horizon (T=14). Suppose that in the first two years, the project has a cost of $175 and $150 respectively and no benefits. From the third year on, the project yields benefits. Starting with a benefit of $40 in t=2, the benefits continuously decline a 1% every year for the remainder of the horizon. Calculate the present value of this project. Use an Excel spreadsheet and print out your work. Consider two different interest rates (i) 3% per year and (ii) 5% per year. In each case, assume that time is (a) discrete and (b) continuous. Create a chart plotting the present value of net benefits for the project horizon under each scenario. (You should have 4 lines on the chart.) Print out your chart as well.
Consider a project with a 15 year time horizon (T=14). Suppose that in the first two years, the project has a cost of $175 and $150 respectively and no benefits. From the third year on, the project yields benefits. Starting with a benefit of $40 in t=2, the benefits continuously decline a 1% every year for the remainder of the horizon. Calculate the present value of this project. Use an Excel spreadsheet and print out your work. Consider two different interest rates (i) 3% per year and (ii) 5% per year. In each case, assume that time is (a) discrete and (b) continuous. Create a chart plotting the present value of net benefits for the project horizon under each scenario. (You should have 4 lines on the chart.) Print out your chart as well.
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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Consider a project with a 15 year time horizon (T=14). Suppose that in the first two years, the project has a cost of
$175 and $150 respectively and no benefits. From the third year on, the project yields benefits. Starting with a
benefit of $40 in t=2, the benefits continuously decline a 1% every year for the remainder of the horizon.
Calculate the present value of this project. Use an Excel spreadsheet and print out your work.
Consider two different interest rates (i) 3% per year and (ii) 5% per year. In each case, assume
that time is (a) discrete and (b) continuous.
Create a chart plotting the present value of net benefits for the project horizon under each scenario. (You should
have 4 lines on the chart.) Print out your chart as well.
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