Investment Perlod 1 2 3 4 5 $(1,000) $100 264 A $100 $100 $100 $1,100 в (1,000) 264 264 264 264 (1,000) 1,611 1. Compute the net present value for each of the following cash flow sequences. Assume a cost of money of 10 percent. 3. Compute the payback for each of the cash flows in problem 1. If the maximum acceptable payback period is four years, which (if any) of the cash flows would be accepted as a desirable investment? 4. Assume a cost of money of 5 percent. Compute the net present values of the cash flows of problem 1. 5. Assume a cost of money of 15 percent. Compute the net present values of the cash flows of problem 1. Compare with the results obtained from problems 1 and 4. 6. The Arrow Company is considering the purchase of equipment that will return cash flows as follows: End of period Cash flows $5,000 2 3 3,000 2,000 1,000 500 5 Assume a cost of money of 10 percent. What is the maximum amount the company could pay for the machine and still be financially no worse off than if it did not buy the machine?
Investment Perlod 1 2 3 4 5 $(1,000) $100 264 A $100 $100 $100 $1,100 в (1,000) 264 264 264 264 (1,000) 1,611 1. Compute the net present value for each of the following cash flow sequences. Assume a cost of money of 10 percent. 3. Compute the payback for each of the cash flows in problem 1. If the maximum acceptable payback period is four years, which (if any) of the cash flows would be accepted as a desirable investment? 4. Assume a cost of money of 5 percent. Compute the net present values of the cash flows of problem 1. 5. Assume a cost of money of 15 percent. Compute the net present values of the cash flows of problem 1. Compare with the results obtained from problems 1 and 4. 6. The Arrow Company is considering the purchase of equipment that will return cash flows as follows: End of period Cash flows $5,000 2 3 3,000 2,000 1,000 500 5 Assume a cost of money of 10 percent. What is the maximum amount the company could pay for the machine and still be financially no worse off than if it did not buy the machine?
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 23SP
Related questions
Question
Transcribed Image Text:Investment
Perlod
1
2
3
4
5
$(1,000)
$100
264
A
$100
$100
$100
$1,100
в
(1,000)
264
264
264
264
(1,000)
1,611
1. Compute the net present value for each of the following cash flow sequences. Assume a cost of money of 10 percent.
3. Compute the payback for each of the cash flows in problem 1. If the maximum acceptable payback period is four years, which (if any) of the
cash flows would be accepted as a desirable investment?
4. Assume a cost of money of 5 percent. Compute the net present values of the cash flows of problem 1.
5. Assume a cost of money of 15 percent. Compute the net present values of the cash flows of problem 1. Compare with the results obtained from
problems 1 and 4.
6. The Arrow Company is considering the purchase of equipment that will return cash flows as follows:
End of period
Cash flows
$5,000
2
3
3,000
2,000
1,000
500
5
Assume a cost of money of 10 percent. What is the maximum amount the company could pay for the machine and still be financially no worse
off than if it did not buy the machine?
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