Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 5, Problem 56SP
Summary Introduction
To determine: The present value of an
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(Related to Checkpoint 6.2) (Present value of annuity payments) The state lottery's million-dollar payout provides for $1 million to be paid in 25 installments of $40,000
per payment. The first $40,000 payment is made immediately, and the 24 remaining $40,000 payments occur at the end of each of the next 24 years. If 12 percent is the
discount rate, what is the present value of this stream of cash flows? If 24 percent is the discount rate, what is the present value of the cash flows?
a. If 12 percent is the discount rate, the present value of the annuity due is $
b. If 24 percent is the discount rate, the present value of the annuity due is $
***
(Round to the nearest cent.)
(Round to the nearest cent.)
Often lottery winnings are divided into equal payments given annually for 20-25 years. So the present value of the winnings is worth less than the actual jackpot, depending on the rate at which money could be
invested. Find the present value in dollars using the given conditions.
Jackpot
Amount
Interest
Rate
Equal Annual
Payments
Present Value
(in dollars)
$15,000,000
7%
20
$15,000,000
13%
20
$15,000,000
7%
25
$15,000,000
13%
25
(Round to the nearest dollar as needed.)
A lottery claims its grand prize is $15 million, payableover five years at $3,000,000 per year. If the firstpayment is made immediately, what is this grand prizereally worth? Use an interest rate of 7%
Chapter 5 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 5 - Prob. 1RQCh. 5 - The processes of discounting and compounding are...Ch. 5 - Prob. 3RQCh. 5 - Prob. 4RQCh. 5 - Prob. 5RQCh. 5 - Prob. 1SPCh. 5 - Prob. 2SPCh. 5 - Prob. 3SPCh. 5 - Prob. 4SPCh. 5 - (Compound value) Stanford Simmons, who recently...
Ch. 5 - (Future value) Sarah Wiggum would like to make a...Ch. 5 - Prob. 7SPCh. 5 - Prob. 8SPCh. 5 - Prob. 9SPCh. 5 - Prob. 10SPCh. 5 - Prob. 11SPCh. 5 - Prob. 13SPCh. 5 - Prob. 14SPCh. 5 - Prob. 15SPCh. 5 - Prob. 16SPCh. 5 - Prob. 17SPCh. 5 - Prob. 18SPCh. 5 - Prob. 19SPCh. 5 - Prob. 20SPCh. 5 - Prob. 21SPCh. 5 - Prob. 22SPCh. 5 - Prob. 23SPCh. 5 - (Solving for PMT of an annuity) To pay for your...Ch. 5 - Prob. 25SPCh. 5 - Prob. 26SPCh. 5 - (Loan amortization) On December 31, Beth Klemkosky...Ch. 5 - (Solving for r of an annuity) You lend a friend...Ch. 5 - Prob. 29SPCh. 5 - (Compound annuity) You plan on buying some...Ch. 5 - (Loan amortization) On December 31, Son-Nan Chen...Ch. 5 - (Loan amortization) To buy a new house you must...Ch. 5 - Prob. 33SPCh. 5 - Prob. 34SPCh. 5 - Prob. 35SPCh. 5 - Prob. 36SPCh. 5 - Prob. 37SPCh. 5 - (Compound interest uith nonannnal periods) a....Ch. 5 - (Compound interest with nonannual periods) After...Ch. 5 - Prob. 40SPCh. 5 - (Spreadsheet problem) To buy a new house you take...Ch. 5 - (Nonannual compounding using a calculator) Jesse...Ch. 5 - (Nonannual compounding using a calculator)...Ch. 5 - (Nonannual compounding using a calculator) Fords...Ch. 5 - Prob. 45SPCh. 5 - (Nonannual compounding using a calculator) Dennis...Ch. 5 - Prob. 47SPCh. 5 - (Calculating the effective annual rate) Youve just...Ch. 5 - Prob. 49SPCh. 5 - Prob. 50SPCh. 5 - (Present value) The Kumar Corporation is planning...Ch. 5 - (Perpetuities) What is the present value of the...Ch. 5 - (Complex present value) How much do you have to...Ch. 5 - (Complex present value) You would like to have...Ch. 5 - Prob. 55SPCh. 5 - Prob. 56SPCh. 5 - Prob. 57SPCh. 5 - Prob. 58SPCh. 5 - (Present value of a complex stream) Don Draper has...Ch. 5 - (Present value of a complex stream) Don Draper has...Ch. 5 - (Complex stream of cash flows) Roger Sterling has...Ch. 5 - (Future and present value using a calculator) In...Ch. 5 - Prob. 1MCCh. 5 - Prob. 2MCCh. 5 - Prob. 3MCCh. 5 - Prob. 4MCCh. 5 - Prob. 5MCCh. 5 - Prob. 6MCCh. 5 - Prob. 7MCCh. 5 - Prob. 8MCCh. 5 - Prob. 9MCCh. 5 - Prob. 10MCCh. 5 - Prob. 11MC
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- What discount rate would make you indifferent between recieving $3515.00 per year forever and $5920.00 per year for 30.00 years? Assume the first payment of both cash flow streams occurs in one year. (Answer format: percentage, round to two decimal places)arrow_forwardConsider two streams of cash flows, A and B. Stream A's first cash flow is $10,000 and is received three years from today. Future cash flows in Stream A grow by 3 percent in perpetulty. Stream B's first cash flow is -$8,900, is received two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 11 percent. a. What is the present value of each stream? (A negative amount should be indicated by a minus sign. Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Stream A Stream B b. Suppose that the two streams are combined into one project, called C. What is the IRR of Project C? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % c. What is the correct IRR rule for Project C? Accept the project if the discount rate is equal the IRR. O Accept the project if the discount rate is above the IRR. Accept the project if the discount rate is…arrow_forwardWhat is the present value of a cash flow stream of $1,000 per year annually for 18 years that then grows at 5.0 percent per year forever when the discount rate is 11 percent? Note: Round intermediate calculations and final answer to 2 decimal places. X Answer is complete but not entirely correct. Present value $ 16,666.67arrow_forward
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- Consider two streams of cash flows, A and B. Stream A's first cash flow is $10,800 and is received three years from today. Future cash flows in stream A grow by 3 percent in perpetuity. Stream B's first cash flow is -$9,800, occurs two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 11 percent. a. What is the present value of each stream? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round the answers to 2 decimal places. Omit $ sign in your response.) Present value Stream A Stream B b. Suppose that the two streams are combined into one project, called C. What is the IRR of project C? (Do not round intermediate calculations. Round the answer to 2 decimal places.) IRR 7% c. What is the correct IRR rule for Project C? Accept the project if the discount rate is above the IRR. Accept the project if the discount rate is below the IRR. Accept the project if the discount rate is equal the IRR.arrow_forwardneed answer in step by steparrow_forwardThe $37.7 million lottery payment that you just won actually pays $2.9 million per year for 13 years. If the discount rate is 8.00% and the first payment comes in 1 year. a. What is the present value of the winnings? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value $ million b. What is the present value of the winnings, if the first payment comes immediately? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value $arrow_forward
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