You are considering buying a food truck and other equipment to make a little money in the fall and spring. You are projecting that you can generate the following net cash flows after paying operating expenses: $3800 next month and $2800 the following month. Then you will take the winter off and start back up again next spring, when you hope to earn $2500 6 months from now, $3700 7 months from now, and $4500 8 months from now, $3500 9 months from now, and $4500 12 months from now. (Discount the first $3800 1 month, the $2800 2 months, etc.) Use a discount rate of 6% per year. Show all work below. What is the present value of this cash flow for the first year of operation? (do the problem algebraically by hand, then confirm using one of the Excel methods). 5. What is the value of the cash flow (from the food truck problem) if you do not discount the numbers? 6. 7. Could you use a PMT formula to solve this problem? Why, or why not?
You are considering buying a food truck and other equipment to make a little money in the fall and spring. You are projecting that you can generate the following net cash flows after paying operating expenses: $3800 next month and $2800 the following month. Then you will take the winter off and start back up again next spring, when you hope to earn $2500 6 months from now, $3700 7 months from now, and $4500 8 months from now, $3500 9 months from now, and $4500 12 months from now. (Discount the first $3800 1 month, the $2800 2 months, etc.) Use a discount rate of 6% per year. Show all work below. What is the present value of this cash flow for the first year of operation? (do the problem algebraically by hand, then confirm using one of the Excel methods). 5. What is the value of the cash flow (from the food truck problem) if you do not discount the numbers? 6. 7. Could you use a PMT formula to solve this problem? Why, or why not?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter14: Real Options
Section: Chapter Questions
Problem 3MC: Tropical Sweets is considering a project that will cost $70 million and will generate expected cash...
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