Question content area top Part 1 (Present value of complex cash flows) You have an opportunity to make an investment that will pay $300 at the end of the first year, $100 at the end of the second year, $500 at the end of the third year, $300 at the end of the fourth year, and $400 at the end of the fifth year. a. Find the present value if the interest rate is 12 percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the =NPV function in Excel or to use your CF key on a financial calculator—but you'll want to check your calculator's manual before you use this key. Keep in mind that with the =NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF0 is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF0=0.) b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent? Question content area bottom Part 1 a. What is the present value of the investment if the interest rate is 12 percent? $enter your response here (Round to the nearest cent.) Part 2 b. What is the present value of the investment if the interest rate is zero percent? $enter your response here (Round to the nearest dollar.)
Question content area top Part 1 (Present value of complex cash flows) You have an opportunity to make an investment that will pay $300 at the end of the first year, $100 at the end of the second year, $500 at the end of the third year, $300 at the end of the fourth year, and $400 at the end of the fifth year. a. Find the present value if the interest rate is 12 percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the =NPV function in Excel or to use your CF key on a financial calculator—but you'll want to check your calculator's manual before you use this key. Keep in mind that with the =NPV function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that CF0 is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0, CF0=0.) b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent? Question content area bottom Part 1 a. What is the present value of the investment if the interest rate is 12 percent? $enter your response here (Round to the nearest cent.) Part 2 b. What is the present value of the investment if the interest rate is zero percent? $enter your response here (Round to the nearest dollar.)
Chapter7: Valuation Of Stocks And Corporations
Section: Chapter Questions
Problem 23SP
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Question content area top
Part 1
(Present value of complex cash flows) You have an opportunity to make an investment that will pay
$300
at the end of the first year,
$100
at the end of the second year,
$500
at the end of the third year,
$300
at the end of the fourth year, and
$400
at the end of the fifth year.a. Find the present value if the interest rate is
12
percent. (Hint: You can simply bring each cash flow back to the present and then add them up. Another way to work this problem is to either use the
=NPV
function in Excel or to use your CF key on a financial
calculator—but
you'll want to check your calculator's manual before you use this key. Keep in mind that with the
=NPV
function in Excel, there is no initial outlay. That is, all this function does is bring all the future cash flows back to the present. With a financial calculator, you should keep in mind that
CF0
is the initial outlay or cash flow at time 0, and, because there is no cash flow at time 0,
CF0=0.)
b. What would happen to the present value of this stream of cash flows if the interest rate were zero percent?
Question content area bottom
Part 1
a. What is the present value of the investment if the interest rate is
12
percent?$enter your response here
(Round to the nearest cent.)Part 2
b. What is the present value of the investment if the interest rate is zero percent?
$enter your response here
(Round to the nearest dollar.)Expert Solution
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