PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 2, Problem 46PS
Declining perpetuities and
- a. What is the PV of the pipeline’s cash flows if its cash flows are assumed to last forever?
- b. What is the PV of the cash flows if the pipeline is scrapped after 20 years?
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You own an oil pipeline that will generate a $2.9 million cash return over the coming year. The pipeline’s operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to decline by 6.0% per year. The discount rate is 5%.
a. What is the PV of the pipeline’s cash flows if its cash flows are assumed to last forever?
b. What is the PV of the cash flows if the pipeline is scrapped after 16 years?
You own an oil pipeline that will generate a $2.8 million cash return over the coming year. The pipeline's operating costs are negligible,
and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to
decline by 5.5% per year. The discount rate is 12%.
a. What is the PV of the pipeline's cash flows if its cash flows are assumed to last forever? (Enter your answer in dollars, not millions
of dollars. Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.)
Present value
b. What is the PV of the cash flows if the pipeline is scrapped after 15 years? (Enter your answer in dollars, not millions of dollars. Do
not round Intermediate calculations. Round your answer to the nearest whole dollar amount.)
Present value
You own an oil pipeline that will generate a $2million cash return over the coming year. Thepipeline’s operating costs are negligible, and it isexpected to last for a very long time. Unfortunately,the volume of oil shipped is declining, and cashflows are expected to decline by 4% per year. Thediscount rate is 10%.a) Calculate the PV of the pipeline’s cash flows if itscash flows are assumed to last forever.b) Calculate the PV of the cash flows if the pipelineis scrapped after 20 years.
Chapter 2 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 2 - (FV) In 1880, five aboriginal trackers were each...Ch. 2 - Prob. 2SQCh. 2 - (PV) Your company can lease a truck for 10,000 a...Ch. 2 - (RATE) Ford Motor stock was one of the victims of...Ch. 2 - Prob. 5SQCh. 2 - Prob. 6SQCh. 2 - Prob. 7SQCh. 2 - (NOMINAL) What monthly compounded interest rate...Ch. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Opportunity cost of capital Explain why we refer...
Ch. 2 - Prob. 3PSCh. 2 - Compound interest New Savings Bank pays 4%...Ch. 2 - Compound interest In 2017, Leonardo da Vincis...Ch. 2 - Future values If you invest 100 at an interest...Ch. 2 - Prob. 7PSCh. 2 - Future values In the five years preceding the end...Ch. 2 - Discount factors a. If the present value of 139 is...Ch. 2 - Prob. 10PSCh. 2 - Prob. 11PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 20PSCh. 2 - Prob. 21PSCh. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Prob. 24PSCh. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 26PSCh. 2 - Prob. 27PSCh. 2 - Prob. 28PSCh. 2 - Prob. 29PSCh. 2 - Annuities due A store offers two payment plans....Ch. 2 - Amortizing loans A bank loan requires you to pay...Ch. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 34PSCh. 2 - Growing annuities You are contemplating membership...Ch. 2 - Prob. 36PSCh. 2 - Growing perpetuities and annuities Your firms...Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Prob. 41PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Prob. 44PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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