Question content area top Part 1 (Present value of complex cash flows) You have an opportunity to make an investment that will pay $300 at the end of the first year, $100 at the end of the second year, $500 at the end of the third year, $300 at the end of the fourth year, and $400 at the end of the fifth year. a. Find the present value if the interest rate is 12 percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the =NPV function in Excel or to use your CF key on a financial calculator—but you'll want to check your calculator's manual before you use this key. Keep in mind that with the =NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF0 is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF0=0.) b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent? Question content area bottom Part 1 a. What is the present value of the investment if the interest rate is 12 percent? $enter your response here (Round to the nearest cent.) Part 2 b. What is the present value of the investment if the interest rate is zero percent? $enter your response here (Round to the nearest dollar.)

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 25SP: Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site....

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Question content area top

Part 1

(Present value of complex cash flows) You have an opportunity to make an investment that will pay

$300

at the end of the first year,

$100

at the end of the second year,

$500

at the end of the third year,

$300

at the end of the fourth year, and

$400

at the end of the fifth year.

a. Find the present value if the interest rate is

percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the

=NPV

function in Excel or to use your CF key on a financial

calculator—but

you'll want to check your calculator's manual before you use this key. Keep in mind that with the

=NPV

function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that

CF0

is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0,

CF0=0.)

b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent?

Question content area bottom

Part 1

a. What is the present value of the investment if the interest rate is

percent?

$enter your response here

(Round to the nearest cent.)

Part 2

b. What is the present value of the investment if the interest rate is zero percent?

$enter your response here

(Round to the nearest dollar.)

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