Please complete the following problems:
1. Find the following values for a single cash flow: [4 points]
a. The future value of $525 invested at 8% for one year
b. The future value of $525 invested at 8% for five years
c. The present value of $525 to be received in one year when the opportunity cost rate is 8%
d. The present value of $525 to be received in five years when the opportunity cost rate is 8%
2. Consider the following net cash flows:
Year Cash Flow
0 $ 0
1 375
2 440
3 590
4 706
5 706
a. What is the net present value if the opportunity cost of capital (discount rate) is 9%? [5
points]
b. Add an outflow (or cost) of $811 at Year 0. Now, what is the net present value? [5 points]
3. Consider another set of net cash flows:
Year Cash Flow
0 $ 3,500
1 3,875
2 4,333
3 4,811
4 0
5 5,854
a. What is the net present value of the stream if the opportunity cost of capital is 8%? [5
points]
b. What is the value of the stream at the end of Year 5 if the cash flows are invested in an
account that pays 8% annually? [5 points]
- For all problems, you are required to illustrate how you got to your final answers. If you do not show your work, you will not receive credit.
- For problems 2 and 3, you are required to show the analysis on a timeline as was done within the chapter. An example of such a timeline is on page 272 of the text. (Although the textbook also demonstrates the financial calculator solution and the spreadsheet solution, these are not considered acceptable for this homework assignment.)
- Your final answers to the problems must be highlighted in yellow.
- Your submitted work must be neat and easily readable. Submissions that are difficult to read will receive a grade of zero.
- It is very important that you use commas to separate thousands within numbers. Comma placement is required in all steps of solving the problems as well as within the final answers.
For example: 20,000 and $4,000,000 are correct
20000 and $4000000 are incorrect and will receive a grade of zero
Please submit a Word, Excel, or PDF document with your responses by the due date.
You may consult the textbook and your notes, but you are expected to work on this assignment independently of others.
Thank you.
