6. NPV = -1,548 + 138/.09 = -14.67 (cost today plus the present value of the perpetuity)

7.PV = 4/(.14-.04) = $40

8.a. PV = 1/.10 = $10

b. Since the perpetuity will be worth $10 in year 7, and since that is roughly
double the present value, the approximate PV equals $5.
PV = (1 / .10)/(1.10)7 = 10/2= $5 (approximately)

c. A perpetuity paying $1 starting now would be worth $10, whereas a perpetuity starting in year 8 would be worth roughly $5. The difference between these cash flows is therefore approximately $5. PV = 10 – 5= $5 (approximately)

d. PV = C/(r-g) = 10,000/(.10-.05) = $200,000.

9. a. PV = 10,000/(1.055) = $7,835.26 (assuming the cost of the car does not appreciate over those five years).

b. You need to set aside (12,000 × 6-year annuity factor) = 12,000 × 4.623 =
$55,476.

c. At the end of 6 years you would have 1.086 × (60,476 - 55,476) = $7,934.

10.We did not cover continuous compounding so you do not need to worry about this question.

...Essay.
Net Presentvalue is the difference between an investment’s market value and its cost. For an example, you invest 100 dollars (Cost) into a lemonade stand but you receive 50 dollars (Market Value) of cash inflow. Another would be you buy a house for 50,000(Cost) But you sell it for 75,000(Market Value). Your net presentvalue An Investment should be accepted if the net...

...
Net presentValue, Mergers and acquisitions
Abstract
Main objective of undertaking this to report was learn about NPV presentvalue (NPV) method to make capital budgeting decision(Google NEW Project) and success factors involved in mergers and acquisitions(Google-Groupon Case).
Answers to the Assignments
Part I: Google should go ahead with the new project.
Part-II: Google’s acquisition of Groupon would have been win...

...for managers
Chapter 7— Net PresentValue and Other Investment
Question 1 : List the methods that a firm can use to evaluate a potential investment.
There are discounted and non-discounted cash-flow capital budgeting criteria to evaluate proposed investments. They are
1) Net presentvalue: NPV is a discounted cash flow technique, which is the difference between an investment’s market value...

...-------------------------------------------------
Workshop 5 – Capital Budgeting II
1. Basic Concepts Review
a) In applying Net PresentValue, what factors do we include, and what factors do we ignore?
Use cash flows not accounting income
Ignore
* sunk costs
* financing costs
Include
* opportunity costs
* side effects
* working capital
* taxation
* inflation
2. Practice Questions
a) After...

.... To find the PVA, we use the equation:
PVA = C({1 – [1/(1 + r)]t } / r )
PVA = $60,000{[1 – (1/1.0825)9 ] / .0825}
PVA = $370,947.84
The presentvalue of the revenue is greater than the cost, so your company can afford the equipment.
7. Here we need to find the FVA. The equation to find the FVA is:
FVA = C{[(1 + r)t – 1] / r}
FVA for 20 years = $3,000[(1.08520 – 1) / .085]
FVA for 20 years = $145,131.04
FVA for 40 years =...

...Part I
A. PresentValue with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14,018.69
PresentValue with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14,423.08
B. Account A - PresentValue with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08
Account B - PresentValue with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11,213.96
C....

...CONCEPT OF PRESENTVALUE SO IMPORTANT FOR CORPORATE FINANCE?
The importance of concept of presentvalue to the world of corporate finance is that presentvalue calculations are widely used in business and economics to provide a means to compare cash flows at different times. Present Value’s definition and simplistic formula used for normal purchases, the concept’s importance to corporate...

...Project B each project’s payback period, net presentvalue, and internal rate of return. In addition, the team will give an analysis of what caused the ranking conflict and which project should be accepted and why. With a final comment, the team will describe factors Caledonia must consider if they were doing a lease versus buy.
Cash flows associated with these projects
RRR = 11%
Year PROJECT A PROJECT B 11%
0 ($100,000) ($100,000)
1 32,000...

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