Your firm's geologists have discovered a small oil field in New York's Westchester County. The field is forecasted to produce a ca flow of C₁ = $3.5 million in the first year. You estimate that you could earn a return of r= 10.8% from investing in stocks with a sim degree of risk to your oil field. Therefore, 10.8% is the opportunity cost of capital. What is the present value? The answer, of course, depends on what happens to the cash flows after the first year. Calculate pres value for the following cases: a. The cash flows are forecasted to continue forever, with no expected growth or decline. Note: Enter your answer in dollars, not millions of dollars. Round your answer to the nearest whole dollar amount. b. The cash flows are forecasted to continue for 20 years only, with no expected growth or decline during that period. Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer nearest whole dollar amount. c. The cash flows are forecasted to continue forever, increasing by 2.4% per year because of inflation. Note: Enter your answer in dollars, not millions of dollars. Round your answer to the nearest whole dollar amount. d. The cash flows are forecasted to continue for 20 years only, increasing by 2.4% per year because of inflation. Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer nearest whole dollar amount. a. Present value b. Present value c. Present value d. Present value
Your firm's geologists have discovered a small oil field in New York's Westchester County. The field is forecasted to produce a ca flow of C₁ = $3.5 million in the first year. You estimate that you could earn a return of r= 10.8% from investing in stocks with a sim degree of risk to your oil field. Therefore, 10.8% is the opportunity cost of capital. What is the present value? The answer, of course, depends on what happens to the cash flows after the first year. Calculate pres value for the following cases: a. The cash flows are forecasted to continue forever, with no expected growth or decline. Note: Enter your answer in dollars, not millions of dollars. Round your answer to the nearest whole dollar amount. b. The cash flows are forecasted to continue for 20 years only, with no expected growth or decline during that period. Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer nearest whole dollar amount. c. The cash flows are forecasted to continue forever, increasing by 2.4% per year because of inflation. Note: Enter your answer in dollars, not millions of dollars. Round your answer to the nearest whole dollar amount. d. The cash flows are forecasted to continue for 20 years only, increasing by 2.4% per year because of inflation. Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer nearest whole dollar amount. a. Present value b. Present value c. Present value d. Present value
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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Transcribed Image Text:Your firm's geologists have discovered a small oil field in New York's Westchester County. The field is forecasted to produce a cash
flow of C₁ = $3.5 million in the first year. You estimate that you could earn a return of r= 10.8% from investing in stocks with a similar
degree of risk to your oil field. Therefore, 10.8% is the opportunity cost of capital.
What is the present value? The answer, of course, depends on what happens to the cash flows after the first year. Calculate present
value for the following cases:
a. The cash flows are forecasted to continue forever, with no expected growth or decline.
Note: Enter your answer in dollars, not millions of dollars. Round your answer to the nearest whole dollar amount.
b. The cash flows are forecasted to continue for 20 years only, with no expected growth or decline during that period.
Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to t
nearest whole dollar amount.
c. The cash flows are forecasted to continue forever, increasing by 2.4% per year because of inflation.
Note: Enter your answer in dollars, not millions of dollars. Round your answer to the nearest whole dollar amount.
d. The cash flows are forecasted to continue for 20 years only, increasing by 2.4% per year because of inflation.
Note: Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations. Round your answer to t
nearest whole dollar amount.
a. Present value
b. Present value
c. Present value
d. Present value
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