Answered: Suppose withdrawals of 10,000 every…

Suppose withdrawals of 10,000 every year starting at time 8 will be made and will go on forever. How much is the value of this annuity at time 0 if the effective rate is 10%?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 15EB: Project X costs $10,000 and will generate annual net cash inflows of $4,800 for five years. What is...

See similar textbooks

Related questions

Q: A report from the marketing department indicates that a new product will generate the following…

A: Discount rate is 11% To Find: Present Value

Q: In most lending organisations, credit losses occur due to lack of credit risk monitoring. You’re…

A: Credit risk is referred as the possibility of the loss, which used to result in the failure of the…

Q: A and 40% B. Compute the coefficient Estimate the market model equations for both stocks and

A: ERi=Rf+βi(ERm−Rf) where:ERi=expected return of investment Rf=risk-free rate βi=beta of the…

Q: While buying a new car, David made a down payment of $800 and agreed to month-end payments of $280…

A: The loans are paid by the equal monthly installments that carry the payment for interest and payment…

Q: Blue Company, is trying to assess the feasibility of acquiring an accounting system for $10,000,000.…

A: Accounting system cost = $10,000,000 Saving = $2,000,000 Time Period = 5 Years Cost of capital = 15%…

Q: to settle a debt of 40000, Mrs santiago will pay quarterly for 7 years at 14% compounded quarterly.…

A: Future Value: The future value is the amount that will be received at the end of a certain period.…

Q: How much money should you deposit every year in your savings account starting 3 years from now at 7…

A: Given: Particulars Amount Future value (FV) 8000 Years 3 Ending deposit 10 Interest rate…

Q: A firm is scheduled to receive payment of $32,000 in 2 years. What is the present value of this…

A: Present value of future cash flow can be calculated as follows: = Future Value/ (1 + rate)^number of…

Q: BP has a bond outstanding with 15 years to maturity, a $1,000 par value, a coupon rate of 6.3%, with…

A: Par value = $1000 Coupon rate = 6.3% Semi annual coupon amount = 1000*0.063/2 = $31.50 Years to…

Q: A rich man put up a trust fund in the bank to give his son the earnings of P 400, 000 at the end of…

A: Trust fund can be defined as a legal entity that holds property or assets for a person or…

Q: A 15-year bond with 9% coupons paid semi-annually will be redeemed at P 6,300. The bond is bought to…

A: Given: Given: Years = 15 Coupon = 9% Redeemable value = P6,300 Yield = 7.5% Purchase price = P6,750

Q: what is the project's NPV? Options

A: Net Present Value: It is the present worth of the project and measures absolute profitability in…

Q: What is the essence of sound financial management to the procurement manager.

A: Financial management Financial management includes using the planning function, organizing…

Q: You purchase a TIP note with an original principal amount of $1,.000,000 and a 9 percent annual…

A: Original Principal Amount = $1,000,000 Annual coupon Rate = 9% Inflation over the first six months =…

Q: What is the official language of the lASB? a) © English b) © German c) © Spanish d) French

A: Solution:- International Accounting Standards Board (IASB) is an independent body at international…

Q: Consider the following alternatives below. Based on a 7% interest rate, assuming both alternatives…

A: Equivalent Uniform annual Cost Method:- When life of two mutually exclusive projects are different…

Q: Required: Find the after-tax return to a corporation that buys a share of preferred stock at $57,…

A: Return is calculated by adding the sale value and any dividend received and reduced by the purchase…

Q: source of finance is the middle layer between equity and debt

A: Mezzanine debt is the source of finance which is the middle layer between equity and debt.…

Q: A company considering water flooding plan for one its small oil field, the chances of success is as…

A: Here, Initial Cost = 15 MM Available venture capital funds = 10 MM Risk = 10% To Find: Net present…

Q: ’t bond rate is 3%; the current beta of equity is 1.5; compute the cost of equitywhat is the Cost…

A: The cost of minimum return required by a firm for an investor's portfolio, or by an individual for…

Q: For how long can you withdraw $500.00 at the end of each month out of a fund of $10,000 deposited…

A: Present Value of Deferred Annuity refers to the concept which dictates the discounted value of a sum…

Q: Explain why it would be wise for a financial manager to learn advanced capital budgeting techniques

A: Capital Budgeting Techniques refer to the process of evaluating the profitability of projects which…

Q: L>Moving to another question will save this po Question 7 You purchase a TIP note with an original…

A: TIPS are treasury inflation protected securities. The principal invested in the TIPS increases with…

Q: $1500 is invested semi-annually for 3 years into a fund that pays 6.8% per year, compounded semi-…

A: Solution:- When an equal amount is deposited each period, it is called annuity.

Q: What is the interest coverage ratio?

A: Interest Coverage Ratio: It is a measure showing how well the firm can pay the interest expense on…

Q: A company is considering a new project requiring an upfront fixed-asset investment of $1,000,000…

A: Net Present value is present value of cash flow minus initial investment

Q: When does a leveraged buyout occur?

A: Leveraged Buyout: An LBO (leveraged buyout) is the acquisition of another firm by using a…

Q: Property worth $77,490.00 can be purchased for 10% down and mortgage payments of $1355.00 at the end…

A: Present value of an annuity can be calculated using the given formula: = Annuity Amount * Present…

Q: S&P 500 index is now at 3300 and has a volatility of 16% per annum. The exercise price of two-month…

A: A call option is an option where the option buyer has the choice to purchase the underlying asset at…

Q: Microsoft invests in google by buying shares worth $50 million, this is an example of O Capital…

A: Whenever a company invests in pother company it is expanding its activity. It is making an…

Q: You have just paid $1,135.90 for a bond, which has 10 years before it, matures. It pays interest…

A: Bond Price = $1,135.90 Par value = $1,000 Yield = 8% Time Period = 10 Years

Q: Please explain the rationale why "There is no constant growth in dividends" in your example?…

A: Dividend-It is a distribution of company's profit to a class of its shareholders. The amount of…

Q: How would you set up the function in Excel to get the IRR of an investment of $22,500 over 6 years,…

A: Internal Rate of Return: Internal Rate of Return (IRR) is the required rate of return at which the…

Q: On July 3, Sherri signed a 3-month, $12,000 simple interest loan earning . Find the maturity date,…

A: Given, The loan amount is $12,000 Term is 3 months Interest is 12.5%

Q: Questions a) Corporations do not receive any funds from investors when their bonds are re-sold in…

A: As per our guidelines we are supposed to answer only one question (if there are multiple questions…

Q: A firm's stock has a required return of 9.00%. The stock's dividend yield (using the dividend to be…

A: A dividend is a return received by an investor from an investment made in the company. In the case…

Q: What are the 7 key factors that are common to all investors

A: Every investor has his own set of unique investment objectives. What he wants in life, i.e. his…

Q: Find the rate of markdown and the markdown. Regular Selling Rate of Markdown Price Sale Price…

A: Answer - Markdown - A markdown is an amount by which you decrease the selling price in order words…

Q: JBL Co. has designed a new conveyor system. Management must choose among three alternative courses…

A: The net present value is used to find the profitability of a project by adding up discounted cash…

Q: Finder Health Corp is one of the biggest companies in the United States with the market capital…

A: Answer:

Q: danger of scam and how can you prevent from falling to it.

A: Scams are many methods of fraud that are aided by hackers on the Net. Scams can take many forms,…

Q: Jordan has $6000 to invest in an annuity from which he plans to make regular withdrawals over the…

A: Amount invested is $6000 term is 3 years

Q: Patrick and Brooklyn are making decisions about their bank accounts. Patrick wants to deposit $300…

A: Solution:- When an amount is invested in bank, it earns some interest. The amount invested initially…

Q: If the interest received was $4790, how much was loaned at 11%?

A: Interest: It refers to the monetary charge on the credit or loan amount and is expressed as APR…

Q: $1000 bond pays 6% interest annually with 13 yrs maturity. Purchase price $905 What is the yield to…

A: Solution:- Yield to maturity means the rate of return earned by the bond holder, if he holds the…

Q: Economic Condition (probability) Stock A (40% of portfolio) Stock B (60% of portfolio) Recession…

A: The expected rate of return is the average amount of interest that a company gives regardless of the…

Q: to

A: COVID 19 CRISIS - Most people infected with the virus will experience mild to moderate illness and…

Q: What APR, compounded monthly, is needed to grow a present value of $250 to $500 over 6 years?

A: As per the information provided: Present value (PV) - $250 Future value (FV) - $500 Period - 6 years…

Q: You are considering a project with an initial cost of $59,700 and annual cash inflows of $10,905 in…

A: At profitability index 1 present value of cash inflow will be equal to initial cost, therefore to…

Q: $1500 is invested semi-annually for 3 years into a fund that pays 6.8% per year, compounded semi-…

A: Solution:- When an equal amount is invested each period, it is called annuity.

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Suppose withdrawals of 10,000 every year starting at time 8 will be made and will go on forever. How
much is the value of this annuity at time 0 if the effective rate is 10%?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Given:

VIEW

Calculation of Present Value of Annuity at Time 0:

VIEW

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

You want to invest $8,000 at an annual Interest rate of 8% that compounds annually for 12 years. Which table will help you determine the value of your account at the end of 12 years? A. future value of one dollar ($1) B. present value of one dollar ($1) C. future value of an ordinary annuity D. present value of an ordinary annuity
Define the stated (quoted) or nominal rate INOM as well as the periodic rate IPER. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? What is the future value of $100 after 5 years under 12% annual compounding? Semiannual compounding? Quarterly compounding? Monthly compounding? Daily compounding? What is the effective annual rate (EAR or EFF%)? What is the EFF% for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?
How much would you invest today in order to receive $30,000 in each of the following (for further Instructions on present value In Excel, see Appendix C): A. 10 years at 9% B. 8 years at 12% C. 14 years at 15% D. 19 years at 18%
Use the tables in Appendix B to answer the following questions. A. If you would like to accumulate $4,200 over the next 6 years when the interest rate is 8%, how much do you need to deposit in the account? B. If you place $8,700 in a savings account, how much will you have at the end of 12 years with an interest rate of 8%? C. You invest $2,000 per year, at the end of the year, for 20 years at 10% interest. How much will you have at the end of 20 years? D. You win the lottery and can either receive $500,000 as a lump sum or $60,000 per year for 20 years. Assuming you can earn 3% interest, which do you recommend and why?
Suppose you save $500 per year at the end of each year for 15 years and earn 8.25% interest per year. What is the present value of this annuity? Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is 8%. What is the value of this perpetuity?