MANAGERIAL FINANCE DECISION MKNG

5-7 PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An investment will pay $150 at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value? Its future value?

5-10 PRESENT AND FUTURE VALUES FOR DIFFERENT INTEREST RATES find the following values. Compounding/discounting occurs annually.

a. An initial $200 compounded for 10 years at 4%

b. An initial $200 compounded for 10 years at 8%

c. The present value of $200 due in 10 years at 4%

d. The present value of $1,870 due in 10 years at 8% and at 4%

e. Define present value and illustrate it using a time line with data from part d. How are present values affected by interest rates?

5-15 PRESENT VALUE OF AN ANNUITY Find the present values of these ordinary annuities. Discounting occurs once a year.

a. $600 per year for 12 years at 8%

b. $300 per year for 6 years at 4%

c. $500 per year for 6 years at 0%

5-21 EVALUATING LUMP SUMS AND ANNUITIES Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $62 million, to receive 10 end-of-year payments of $9.5 million, or to receive 30 end-of-year payments of $5.6 million.

a. If she thinks she can earn 7% annually, which should she choose?

b. If she expects to earn 8% annually, which is the best choice?

c. If she expects to earn 9% annually, which option would you recommend?

You may also like...