Explain how you would modify the present value of an annuity shortcut formula to accommodate an equal payment stream that begins immediately. How would you modify the present value of an annuity shortcut formula to accommodate an annuity that begins in year 5? How would you answer this question if the payment stream was a growing perpetuity?
Explain how you would modify the present value of an annuity shortcut formula to accommodate an equal payment stream that begins immediately. How would you modify the present value of an annuity shortcut formula to accommodate an annuity that begins in year 5? How would you answer this question if the payment stream was a growing perpetuity?
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
Related questions
Question
Please solve only part C in 30 minute
Transcribed Image Text:Question 4
a. You have just started a new company to deliver mail and parcels to rural communities. At
the moment, other companies either do not provide a service or are exceptionally expensive.
The new company requires initial investment to purchase a fleet of 20 medium-size vans.
These cost £20,000 each and each one requires a down payment of 20 per cent. Your
business plan anticipates the vans being fully paid off after 6 years and you wish to make
monthly payments on the vans starting a month from now. The APR of the loan is 9.6 per
cent. What are the monthly payments?
b. After 4 years, you are approached by another firm who wishes to buy the postal company.
You wish to pay off the van loan completely and approach your bank for details. They have
indicated that any early completion of your loan will incur a 1 per cent penalty. You have
just paid an instalment and have 24 payments left (next payment in a month). How much
will you need to pay the bank today to cancel the loan?
с.
Explain how you would modify the present value of an annuity shortcut formula to
accommodate an equal payment stream that begins immediately. How would you modify
the present value of an annuity shortcut formula to accommodate an annuity that begins in
year 5? How would you answer this question if the payment stream was a growing
perpetuity?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step 1: Objective
VIEWStep 2: Recall the shortcut formula and propose modification
VIEWStep 3: Modification for stream of cash flows starting in year 5
VIEWStep 4: Modification of the formula for PV of a growing perpetuity
VIEWStep 5: Modification of the formula for PV of a growing perpetuity for deferal
VIEWStep 6
VIEW
Step by step
Solved in 6 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education