Valuation of cash flow streams Question 1 Suppose that you are considering an investment product that promises to pay $2,000 at the end of each year for the next five years. Assume that a discount rate of 12% is applicable to similar investment alternatives. Answer questions a) and b) below. a) How much would you be willing to pay for the investment product? ( Lecture notes pp.9-11) Answer (show the steps/ calculation toward your results): b) Consider another investment product that promises to pay $1,000 every six months for the next five years, with the first payment to be made in six months from today. Applying the same discount rate, how much would you pay for this product? (See p.15 for a monthly case.) Answer (show the steps/calculation toward your results):

Valuation of cash flow streams Question 1 Suppose that you are considering an investment product that promises to pay $2,000 at the end of each year for the next five years. Assume that a discount rate of 12% is applicable to similar investment alternatives. Answer questions a) and b) below. a) How much would you be willing to pay for the investment product? ( Lecture notes pp.9-11) Answer (show the steps/ calculation toward your results): b) Consider another investment product that promises to pay $1,000 every six months for the next five years, with the first payment to be made in six months from today. Applying the same discount rate, how much would you pay for this product? (See p.15 for a monthly case.) Answer (show the steps/calculation toward your results):

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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Net Present Value Method, Internal Rate of Return Method, and Analysis for a Service Company The management of Advanced Alternative Power Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows: Biofuel Equipment Year 1 2 3 4 Year 1 2 The wind turbines require an investment of $513,900, while the biofuel equipment requires an investment of $1,093,320. No residual value is expected from either project. Present Value of an Annuity of $1 at Compound Interest 12% 0.893 1.690 2.402 3.037 3.605 3 4 5 Wind Turbines 6 7 8 9 10 Required: $180,000 180,000 180,000 180,000 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 $360,000 360,000 360,000 360,000 5.759 6.145 4.111 4.564 4.968 5.328 5.650 15% 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 1a. Compute the net present value for each project. Use…
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Assuming a 1-year, money market account investment at 2.282.28 percent (APY), a 1.391.39 percent inflation rate, a 2525 percent marginal tax bracket, and a constant $50 comma 00050,000 balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions? Question content area bottom Part 1 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax rate of return is 1.711.71%. (Round to two decimal places.) Part 2 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax monetary return is $855855. (Round to the nearest dollar.) Part 3 Given an after-tax return of 1.711.71% and an inflation rate of 1.391.39%, the after-tax real rate…
1.4 The table represents the cash flows received from the investments at the end year. Each investment requires an initial investment of $1000. Answer the questions related to the two investment opportunities in the table below. Year 1 2 3 4 5 Investment A 225 215 250 225 205 Investment B 220 225 250 250 210 There are two approaches to evaluate this investment. Show the necessary calculations. • Assume the interest rate ot 4.33%. Use present value analysis to determine which investment you should choose? Calculating the rate of returns of the investment, which investment would you choose and why?
What is the present value of an investment with the following cash flows? Year 1 $14,000 Year 2 $20, 000 Year 3 $30,000 Year 4. $ 43,000 Year 5. $ 57,000 Use a 7% discount rate, and round your answer to the nearest $1. a. $128, 487 b. $107, 328 c. $112, 346 d. $ 153, 272
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Assuming a 1-year, money market account investment at 2.282.28 percent (APY), a 1.391.39 percent inflation rate, a 2525 percent marginal tax bracket, and a constant $50 comma 00050,000 balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions? Question content area bottom Part 1 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax rate of return is 1.711.71%. (Round to two decimal places.) Part 2 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax monetary return is $855855. (Round to the nearest dollar.) Part 3 Given an after-tax return of 1.711.71% and an inflation rate of 1.391.39%, the after-tax real rate…
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Assuming a 1-year, money market account investment at 2.282.28 percent (APY), a 1.391.39 percent inflation rate, a 2525 percent marginal tax bracket, and a constant $50 comma 00050,000 balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions? Question content area bottom Part 1 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax rate of return is 1.711.71%. (Round to two decimal places.) Part 2 Assuming a 1-year, money market account investment at 2.282.28% (APY), a 2525% marginal tax bracket, and a constant $ 50 comma 000$50,000 balance, the after-tax monetary return is $855855. (Round to the nearest dollar.) Part 3 Given an after-tax return of 1.711.71% and an inflation rate of 1.391.39%, the after-tax real rate…

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