You just signed a business consulting contract with one of yourclients. The client will pay you $50,000, in today's dollars, at theend of the first year increasing by $5,000 per year for five years.You anticipate the general inflation rate over this period to be 6%.Your desired inflation-free interest rate is 4%.Determine the equivalent present worth of this cash flow usingconstant dollar analysis and actual dollar analysis?

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Answered: You just signed a business consulting…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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Similar questions

Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)
You put $250 in the bank for S years at 12%. A. If interest is added at the end of the year, how much will you have in the bank after one year? Calculate the amount you will have in the bank at the end of year two and continue to calculate all the way to the end of the fifth year. B. Use the future value of $1 table in Appendix B and verity that your answer is correct.
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 have $100,000 cash today and you can invest it to become a millionaire in 15 years. What is the present purchasing power equivalent of this $1,200,000 when the average inflation rate over the first seven years is 7% per year, and over the last eight years it will be 8% per year? Please solve this problem using excel spreadsheet.
You are valuing an investment that will pay you $26,000 per year for the first 9 years,$34,000 per year for the next 11 years, and $47,000 per year the following 14 years (allpayments are at the end of each year).Another similar risk investment alternative is an account with a quoted annual interest rate of9.00% with monthly compounding of interest.Required:Calculate the value in today's dollars of the set of cash flows you have been offered i.e.for each investment alternative, and decide which option is more profitable.
please help me answer it as fast as you can Your firm expects to receive a cash flow in two years of $1698 in nominal terms. If the real rate of interest is 2% and inflation rate is 9%, what is the real cash flow for year 2?
You are valuing an investment that will pay you $26,000 per year for the first 4 years, $36,000 per year the next 11 years, $49,000 per year the next 17 years, and $45,000 per year the following 10 years (all payments are at the end of each year). If the appropriate annual discount rate is 6.00%, what is the value of the investment to you today?
Hollywood Shoes would like to maintain their cash account at a minimum level of $67,000, but expect the standard deviation in net daily cash flows to be $5,700; the effective annual rate on marketable securities to be 6.50 percent per year; and the trading cost per sale or purchase of marketable securities to be $270 per transaction. What will be their optimal cash return point? (Round your answer to 2 decimal places.)
You are evaluating a growing perpetuity product from a large financial services firm. The product promises an initial payment of $25,000 at the end of this year and subsequent payments that will thereafter grow at a rate of 0.05 annually. If you use a discount rate of 0.08 for investment products, what is the present value of this growing perpetuity? Round to two decimal places.
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,700 per month in a stock account in real dollars and $595 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 12 percent, and the bond account will earn 8 percent. When you retire, you will combine your money into an account with an effective return of 9 percent. The returns are stated in nominal terms. The inflation rate over this period is expected to be 4 percent. a. How much can you withdraw each month from your account in real terms assuming a 25-year withdrawal period? b. What is the nominal dollar amount of your last withdrawal?

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