PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337117005
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 5FPE
a)
Summary Introduction
To determine:
b)
Summary Introduction
To determine: Future value
c)
Summary Introduction
To determine: Future value
d)
Summary Introduction
To determine: Periodic payment (PMT)
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Consider an asset that costs $120 today. You are going to hold it for 1 year and then sell it. Suppose that there is a 25 percent chance that it will be worth $100 in a year, a 25 percent chance that it will be worth $115 in a year, and a 50 percent chance that it will be worth $140 in a year. What is its average expected rate of return? Next, fifi gure out what the investment’s average expected rate of return would be if its current price were $130 today. Does the increase in the current price increase or decrease the asset’s average expected rate of return? At what price would the asset have a zero rate of return?
An example of how to calculate net present value is done using the following. Imagine you have been given an investment opportunity wherein if you invest $1,200 today, you will receive $650 dollars at the end of each year for the next 5 years. You could separately choose to invest your money at 10% interest each year. Should you take the investment opportunity? To find the answer, use the NPV formula:
Suppose you invest $3,000 today and receive $10,000 in 25 years.
a. What is the internal rate of return (IRR) of this opportunity?
b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the
amount you will receive each year?
a. What is the internal rate of return (IRR) of this opportunity?
The IRR of this opportunity is%. (Round to two decimal places.)
b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the
amount you will receive each year?
The periodic payment that gives the same IRR is $
(Round to the nearest cent.)
Chapter 2 Solutions
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
Knowledge Booster
Similar questions
- If you are saving the same amount each month in order to buy a new sports car when the new models are released, which of the following will help you determine the savings needed? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuityarrow_forwardSuppose you want to save up $100,000 to buy a house in 10 years. You plan to invest a lump sum amount of $50,000 today in a savings account that pays an annual interest rate of 6%. How long will your investment take to grow to $100,000? Will you be able to buy your desired house with the current investment after 10 years?arrow_forwardWhat is the relationship between present value and future value? • Suppose you need $15,000 in 3 years. If you can earn 6% annually, how much do you need to invest today? • If you could invest the money at 8%, would you have to invest more or less than at 6%? How much?arrow_forward
- Suppose you invest $2,000 today and receive $11,000 in five years. a. What is the internal rate of return (IRR) of this opportunity? b. Suppose another investment opportunity also requires $2,000 upfront, but pays an equal amount at the end of each year for the next five years. If this investment has the same IRR as the first one, what is the amount you will receive each year?arrow_forwardYou can buy property today for $3.9 million and sell it in 5 years for $4.9 million. (you have no rental income on the property). 1. If the interest rate is 8% what is the present value of the sales price? 2. Is the property investment attractive to you? 3. What is the present value of the future cash flows if you are could earn $290000 per year rent on the property? The rent is paid at the end of each year. 4. Is the property investment attractive to you now?arrow_forwardYou have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1,500 two years from now, and $10,000 ten years from now. a. What is the NPV of the investment opportunity if the interest rate is 8% per year? Should you take the opportunity? b. What is the NPV of the investment opportunity if the interest rate is 4% per year? Should you take the opportunity? a. What is the NPV of the investment opportunity if the interest rate is 8% per year? The NPV of the investment opportunity if the interest rate is 8% per year is $. (Round to the nearest dollar.) Should you take the investment opportunity (Select the best choice below.) A. Reject it because the NPV is less than 0. B. Take it because the NPV is equal to or greater than 0. b. What is the NPV of the investment opportunity if the interest rate is 4% per year? The NPV of the investment opportunity if the interest rate is 4% per year is $ (Round to the nearest dollar.) Should…arrow_forward
- You’re trying to choose between two different investments, both of which will cost $65,000 today. Investment A will give you $125,000 in 6 years and Investment B will give you $205,000 in 10 years. Which of the two investments should you choose? Why? How will your answer change, if any, if interest rates are expected to increase over the next 10 years. (Explain using the appropriate equations and show all work)arrow_forwardYou have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?arrow_forwardTo live comfortably in retirement, you decide you will need to save $2 million by the time you are 65 (you are 30 years old today). You will start a new retirement savings account today and contribute the same amount of money on every birthday up to and including your 65th birthday. Using TVM principles, how much must you set aside each year to make sure that you hit your target goal if the interest rate is 5%? What flaws might exist in your calculations, and what variables could lead to different outcomes? What actions could you take ensure you reach your target goal?arrow_forward
- You are considering a safe investment opportunity that requires a $780 investment today, and will pay $870 two years from now and another $640 five years from now. a. What is the IRR of this investment? b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of 5% per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain.arrow_forwardUse the present value and future value tables to answer the following questions. A. If you would like to accumulate $2,600 over the next 5 years when the interest rate is 15%, how much do you need to deposit in the account? $fill in the blank 1 B. If you place $6,300 in a savings account, how much will you have at the end of 7 years with a 12% interest rate? $fill in the blank 2 C. You invest $7,000 per year for 11 years at 12% interest, how much will you have at the end of 11 years? $fill in the blank 3 D. You win the lottery and can either receive $740,000 as a lump sum or $50,000 per year for 20 years. Assuming you can earn 8% interest, which do you recommend and why? Take the lump sum $740,000 because it is more money.arrow_forwardUsing a financial calculator, You can buy property today for $2.1 million and sell it in 6 years for $3.1 million. (You earn no rental income on the property.) If the interest rate is 11%, what is the present value of the sales price?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
PFIN (with PFIN Online, 1 term (6 months) Printed...FinanceISBN:9781337117005Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
PFIN (with PFIN Online, 1 term (6 months) Printed...
Finance
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College