Problem 3. P5-17, Page 207 Personal finance: Cash flow investment decision (24 p
ID: 2817157 • Letter: P
Question
Problem 3. P5-17, Page 207 Personal finance: Cash flow investment decision (24 points) Table A-2
A N = 5, I = 10%, FV = $30,000
B
N = 20, I = 10%, FV = $3,000
Solve for PV =
Solve for PV =
C N = 10, I = 10%, FV = $10,000
D
N = 40, I = 10%, FV = $15,000
Solve for PV =
Solve for PV =
List which purchases you would recommend.
Purchase Do Not Purchase
Problem 4. P5-30, Page 211 Value of mixed stream (12 points) Table A-2 Project A
CF1 = $2,000, CF2 = $3,000, CF3 = $4,000, CF4 = $6,000, CF5 = $8,000
Set I = 12
Solve for NPV = $
Project B
CF1 = $10,000, CF2 = $5,000, F2 = 4, CF3 = $7,000
Set I = 12
Solve for NPV = $
Project C
CF1 = $10,000, F1 = 5, CF2 = $8,000, C2 = 5
Set I = 12
Solve for NPV = $
Problem 5. P6-8, Page 263 Risk-free rate and risk premiums (21 points)
Risk-free rate: RF = r* + IP
Security
r*
+
IP
=
RF
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+
=
B
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=
C
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D
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provide answer:
Nominal rate: r = r* + IP + RP
Security
r*
+
IP
+
RP
=
r
A
+
+
=
B
+
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=
C
+
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D
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E
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Problem 6. P7-20, Page 307 Management action and stock value (16 points)
a. P0 = $3.15 ÷ (0.15 0.05) = $31.50
P0 =
P0 =
P0 =
P0 =
What is the best alternative?
A N = 5, I = 10%, FV = $30,000
B
N = 20, I = 10%, FV = $3,000
Solve for PV =
Solve for PV =
Explanation / Answer
Answer to Problem 3.
Case A:
Future Value = Present Value * (1 + r)^ n
$30,000 = Present Value * (1 + 0.10)^ 5
$30,000 = Present Value * 1.10^ 5
$30,000 = Present Value * 1.6105
Present Value = $18,627.76
Case B:
Future Value = Present Value * (1 + r)^ n
$3,000 = Present Value * (1 + 0.10)^ 20
$3,000 = Present Value * 1.10^ 20
$3,000 = Present Value * 6.7275
Present Value = $445.93
Case C:
Future Value = Present Value * (1 + r)^ n
$10,000 = Present Value * (1 + 0.10)^ 10
$10,000 = Present Value * 1.10^ 10
$10,000 = Present Value * 2.5937
Present Value = $3,855.50
Case D:
Future Value = Present Value * (1 + r)^ n
$15,000 = Present Value * (1 + 0.10)^ 40
$15,000 = Present Value * 1.10^ 40
$15,000 = Present Value * 45.2593
Present Value = $331.42
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