A cash flow sequence starts in year 1 at $5,000 and increases by $200 each year through year 10. Determine the present worth of the sequence. Use an interest rate of 10%.
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For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box.
A cash flow sequence starts in year 1 at $5,000 and increases by $200 each year through year 10. Determine the present worth of the sequence. Use an interest rate of 10%.
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- Garnette Corp is considering the purchase of a new machine that will cost $342,000 and provide the following cash flows over the next five years: $99,000, $88,000, $92,000. $87,000, and $72,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel. see Appendix C.Your company is planning to purchase a new log splitter for is lawn and garden business. The new splitter has an initial investment of $180,000. It is expected to generate $25,000 of annual cash flows, provide incremental cash revenues of $150,000, and incur incremental cash expenses of $100,000 annually. What is the payback period and accounting rate of return (ARR)?Assume San Lucas Corporation in MAD 26-1 assigns the following probabilities to the estimated annual net cash flows: a. Compute the expected value of the annual net cash flows. b. Determine the expected net present value of the equipment, assuming a desired rate of return of 10% and the expected annual net cash flows computed in part (a). Use the present value tables (Exhibits 2 and 5) provided in the chapter in determining your answer. c. Based on your results in parts (a) and (b), should San Lucas Corporation invest in the equipment?
- The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
- Fenton, Inc., has established a new strategic plan that calls for new capital investment. The company has a 9.8% required rate of return and an 8.3% cost of capital. Fenton currently has a return of 10% on its other investments. The proposed new investments have equal annual cash inflows expected. Management used a screening procedure of calculating a payback period for potential investments and annual cash flows, and the IRR for the 7 possible investments are displayed in image. Each investment has a 6-year expected useful life and no salvage value. A. Identify which project(s) is/are unacceptable and briefly state the conceptual justification as to why each of your choices is unacceptable. B. Assume Fenton has $330,000 available to spend. Which remaining projects should Fenton invest in and in what order? C. If Fenton was not limited to a spending amount, should they invest in all of the projects given the company is evaluated using return on investment?For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. The future worth in year 8 of an arithmetic gradient cash flow series for years 1 through 8 is $800,000. If the gradient increase each year is $5,000, determine the cash flow in year 1 at an interest rate of 10% per year.The financial manager at Starbuck Industries is considering an investment that requires an initial outlay of $25,000 and is expected to produce cash inflows of $3,000 at the end of year 1, $6,000 at the end of years 2 and 3, $10,000 at the end of year 4, $8,000 at the end of year 5, and $7,000 at the end of year 6. Draw and label a timeline depicting the cash flows associated with Starbuck Industries’ proposed investment. Use arrows to demonstrate, on the timeline in part a,how compounding to find future value can be used to measure all cash flows at the end of year 6. Use arrows to demonstrate, on the timeline in part b,how discounting to find present value can be used to measure all cash flows at time zero. Which of the approaches—future value or present value—do financial managers rely on most often for decision making?
- For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. The future amount of $100,000 for a period of 8 years is equal to $341,655.49, considering money is worth 10% per year. What is the inflation rate?For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. An asset costs $20,000 today. If inflation is 6% per year and interest is 10% per year, what will be the appropriate future value of the machine adjusted for inflation in 5 years?Answer the following questions by including the appropriate cash flow diagrams, solution, and final answer. 1. What equal-annual-payment series is required in order to repay each given present amount? (a) Php 1.5M in four years at 7% interest compounded quarterly, (b) Php 2.0M in five years at 8% interest compounded semi-annually, (c) Php 2.5M in six years at 5% interest compounded annually, and (d) Php 3.5M in 15 years at 7% interest. 2. You are planning to save enough money to buy a brand new car five years from now. You are setting a budget of Php 1,000,000 for this purchase. Your plan is to accumulate the amount by making three savings deposits at an interest rate of 10%.…
