EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780135160473
Author: KEOWN
Publisher: PEARSON CO
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 5, Problem 57SP
Summary Introduction
To determine: The
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A lottery offers you a choice of $1,000,000 per year for 30 years or a lump-sum payment. What lump-sum payment (rounded to the nearest dollar) would equal the annual payments if the current interest rate is 1.9% compounded annually?
(a) State the type.
A. amortization B. present value of an ordinary annuity C. future value of an ordinary annuity D.sinking fund E. none of these
(b) Answer the question. (Round your answer to the nearest dollar.)
(Related to Checkpoint 6.2) (Present value of annuity payments) The state lottery's million-dollar payout provides for $1 million to be paid in 25 installments of $40,000
per payment. The first $40,000 payment is made immediately, and the 24 remaining $40,000 payments occur at the end of each of the next 24 years. If 12 percent is the
discount rate, what is the present value of this stream of cash flows? If 24 percent is the discount rate, what is the present value of the cash flows?
a. If 12 percent is the discount rate, the present value of the annuity due is $
b. If 24 percent is the discount rate, the present value of the annuity due is $
***
(Round to the nearest cent.)
(Round to the nearest cent.)
Consider two streams of cash flows, A and B. Stream A's first cash flow is $10,000 and is
received three years from today. Future cash flows in Stream A grow by 3 percent in
perpetulty. Stream B's first cash flow is -$8,900, is received two years from today, and
will continue in perpetuity. Assume that the appropriate discount rate is 11 percent.
a. What is the present value of each stream? (A negative amount should be indicated
by a minus sign. Do not round Intermediate calculations and round your answers to
2 decimal places, e.g., 32.16.)
Stream A
Stream B
b. Suppose that the two streams are combined into one project, called C. What is the IRR
of Project C? (Do not round Intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
IRR
%
c. What is the correct IRR rule for Project C?
Accept the project if the discount rate is equal the IRR.
O Accept the project if the discount rate is above the IRR.
Accept the project if the discount rate is…
Chapter 5 Solutions
EBK FOUNDATIONS OF FINANCE
Ch. 5 - Prob. 1RQCh. 5 - The processes of discounting and compounding are...Ch. 5 - Prob. 3RQCh. 5 - Prob. 4RQCh. 5 - Prob. 5RQCh. 5 - Prob. 1SPCh. 5 - Prob. 2SPCh. 5 - Prob. 3SPCh. 5 - Prob. 4SPCh. 5 - Prob. 5SP
Ch. 5 - (Compound value) Stanford Simmons, who recently...Ch. 5 - (Future value) Sarah Wiggum would like to make a...Ch. 5 - Prob. 8SPCh. 5 - (Future value) Giancarlo Stanton hit 59 home runs...Ch. 5 - Prob. 10SPCh. 5 - Prob. 11SPCh. 5 - Prob. 12SPCh. 5 - Prob. 13SPCh. 5 - Prob. 14SPCh. 5 - Prob. 15SPCh. 5 - Prob. 16SPCh. 5 - Prob. 17SPCh. 5 - Prob. 18SPCh. 5 - Prob. 19SPCh. 5 - Prob. 20SPCh. 5 - Prob. 21SPCh. 5 - Prob. 22SPCh. 5 - Prob. 23SPCh. 5 - Prob. 24SPCh. 5 - (Solving for PMT of an annuity) To pay for your...Ch. 5 - Prob. 26SPCh. 5 - Prob. 27SPCh. 5 - (Loan amortization) On December 31, Beth Klemkosky...Ch. 5 - (Solving for r of an annuity) You lend a friend...Ch. 5 - Prob. 30SPCh. 5 - (Compound annuity) You plan on buying some...Ch. 5 - (Loan amortization) On December 31, Son-Nan Chen...Ch. 5 - (Loan amortization) To buy a new house you must...Ch. 5 - Prob. 34SPCh. 5 - Prob. 35SPCh. 5 - Prob. 36SPCh. 5 - Prob. 37SPCh. 5 - Prob. 38SPCh. 5 - (Compound interest uith nonannnal periods) a....Ch. 5 - (Compound interest with nonannual periods) After...Ch. 5 - Prob. 41SPCh. 5 - (Spreadsheet problem) To buy a new house you take...Ch. 5 - (Nonannual compounding using a calculator) Jesse...Ch. 5 - (Nonannual compounding using a calculator)...Ch. 5 - (Nonannual compounding using a calculator) Fords...Ch. 5 - Prob. 46SPCh. 5 - (Nonannual compounding using a calculator) Dennis...Ch. 5 - Prob. 48SPCh. 5 - (Calculating the effective annual rate) Youve just...Ch. 5 - Prob. 50SPCh. 5 - Prob. 51SPCh. 5 - (Present value) The Kumar Corporation is planning...Ch. 5 - (Perpetuities) What is the present value of the...Ch. 5 - (Complex present value) How much do you have to...Ch. 5 - (Complex present value) You would like to have...Ch. 5 - Prob. 56SPCh. 5 - Prob. 57SPCh. 5 - Prob. 58SPCh. 5 - Prob. 59SPCh. 5 - (Present value of a complex stream) Don Draper has...Ch. 5 - (Present value of a complex stream) Don Draper has...Ch. 5 - (Complex stream of cash flows) Roger Sterling has...Ch. 5 - (Future and present value using a calculator) In...Ch. 5 - Prob. 1MCCh. 5 - Prob. 2MCCh. 5 - Prob. 3MCCh. 5 - Prob. 4MCCh. 5 - Prob. 5MCCh. 5 - Prob. 6MCCh. 5 - Prob. 7MCCh. 5 - Prob. 8MCCh. 5 - Prob. 9MCCh. 5 - Prob. 10MCCh. 5 - Prob. 11MC
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
- Often lottery winnings are divided into equal payments given annually for 20-25 years. So the present value of the winnings is worth less than the actual jackpot, depending on the rate at which money could be invested. Find the present value in dollars using the given conditions. Jackpot Amount Interest Rate Equal Annual Payments Present Value (in dollars) $15,000,000 7% 20 $15,000,000 13% 20 $15,000,000 7% 25 $15,000,000 13% 25 (Round to the nearest dollar as needed.)arrow_forwardWhat is the present value of a cash flow stream of $1,000 per year annually for 18 years that then grows at 5.0 percent per year forever when the discount rate is 11 percent? Note: Round intermediate calculations and final answer to 2 decimal places. X Answer is complete but not entirely correct. Present value $ 16,666.67arrow_forwardInvestment X offers to pay you $4,800 per year for 9 years, whereas Investment Y offers to pay you $7,100 per year for 5 years. If the discount rate is 6 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Investment X Investment Y If the discount rate is 16 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Investment X Investment Yarrow_forward
- Investment X offers to pay you $5,300 per year for eight years, whereas Investment Y offers to pay you $7,300 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?arrow_forwardWhat discount rate would make you indifferent between recieving $3515.00 per year forever and $5920.00 per year for 30.00 years? Assume the first payment of both cash flow streams occurs in one year. (Answer format: percentage, round to two decimal places)arrow_forwardOften lottery winnings are divided into equal payments given annually for 20-25 years. So the present value of the winnings is worth less than the actual jackpot, depending on the rate at which money could be invested. Find the present value using the given conditions. Jackpot Interest Equal Annual Amount Rate Payments $8,000,000 6% 20 $8,000,000 10% $8,000,000 6% $8,000,000 10% 25 (Round to the nearest cent as needed.) 20 25 Present Value (in dollars) $ D (...)arrow_forward
- Investment X offers to pay you $6,000 per year for 9 years,whereas Investment Y offers to pay you $8,000 per year for 6 years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?arrow_forwardConsider two streams of cash flows, A and B. Stream A's first cash flow is $10,800 and is received three years from today. Future cash flows in stream A grow by 3 percent in perpetuity. Stream B's first cash flow is -$9,800, occurs two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 11 percent. a. What is the present value of each stream? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round the answers to 2 decimal places. Omit $ sign in your response.) Present value Stream A Stream B b. Suppose that the two streams are combined into one project, called C. What is the IRR of project C? (Do not round intermediate calculations. Round the answer to 2 decimal places.) IRR 7% c. What is the correct IRR rule for Project C? Accept the project if the discount rate is above the IRR. Accept the project if the discount rate is below the IRR. Accept the project if the discount rate is equal the IRR.arrow_forwardWinners of the PowerState Lottery can take $30 million now or payments of $2.5 million per year for the next 15 years. These are equivalent at what annual interest rate? The answer is closest to what value? (a) 1% (b) 2% (c) 3% (d) 5%arrow_forward
- Imagine that you won $100 million in the lottery and were offered the choice between two payment plans: Plan A: Receive $61 million in a lump sum today Plan B: Receive an initial payment of $1.5 million today and annual payments that increase by 5% annually over the next 29 years (30 payments total) a. Determine the net present value of each plan without discounting. Which plan is the better option? b. Assuming an interest rate of 4%, determine the future value of each plan at the end of the 29 years with discounting. Which plan is the better option?arrow_forwardThe $37.7 million lottery payment that you just won actually pays $2.9 million per year for 13 years. If the discount rate is 8.00% and the first payment comes in 1 year. a. What is the present value of the winnings? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value $ million b. What is the present value of the winnings, if the first payment comes immediately? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Present value $arrow_forwardA lottery claims its grand prize is $10 million, payable over 5 years at $2,000,000 per year. If the first payment is made immediately, what is this grand prize really worth? Use an interest rate of 6%.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College