Please post the answers (and show your work) in the assignments section by midnight the last day of the week assigned.

1. Calculate the future value of 1,535 invested today for 8 years at 6 percent. (5 points) $1535 * 1.5938 = $2,446

2. What is the total present value of the following cash stream, discounted at 8 percent? (5 points) |Year |Amount |Rate |PV | |1 | $ 400.00 |0.926 | $ 370.40 | |2 | $ 750.00 |0.857 | $ 642.75 | |3 | $ 945.00 |0.794 | $ 750.33 | |4 | $ 145.00 |0.735 | $ 106.58 | |5 | $ 78.00 |0.681 | $ 53.12 | | | |Total | $ 1,923.17 |

3. If you invested $2,000 per year into an IRA for 30 years and received 6 percent return each year, what would the account balance be in 30 years? (8 points) $2,000 * 79.058 = $158,116.37

4. A friend gives you a proposition. If you give him 1,500 dollars today, he will guarantee your receive 12 percent a year for the next 5 years. How much money will you receive from him at the end of 5 years? (8 points) $1,500 * 1.7623 = $2,643.51

5. You want to buy a new Computer Aided Design (CAD) system for your business. The cost of the system is $150,000 and you expect to save over $40,000 per year in reduced labor costs. Please calculate the net present value of the CAD if your required return is 10 percent and the life of the system is expected to be 5 years. (12 points)

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|THE FISHMONGERS FARMS LIMITED |
| |
| |
|CASHFLOW PROJECTION FOR 12 MONTHS |
|ADISA DUROJAIYE & CO., |
TABLE OF CONTENTS
NOTES AND ASSUMPTIONS TO THE CASHFLOW PROJECTIONS
CASHFLOW PROJECTIONS
CONCLUSION AND RECOMMENDATIONS
THE FISHMONGERS FARMS LIMITED
NOTES AND ASSUMPTION TO THE CASHFLOW
PROJECTIONS FOR 12 MONTHS
1. AIM
The aim of this cashflow project is to show how feasible THE FISHMONGERS FARMS LIMITED can utilize the Bank Overdraft of N10.00 Million when granted to them
2. SOURCE OF FUND
The turnover of THE FISHMONGERS FARMS LIMITED shall come from the sales of fish feeds and fish products, which is going to run through the period of the projection. THE FISHMONGERS FARMS...

...By: Dana Angeline F. Agao
CASH FLOW STATEMENT
OBJECTIVES:
To provide information about an entity's cash
receipts and cash payments during a period.
To provide information on a cash basis about its
operating, investing, and financing activities. The
statement of cash flows therefore reports cash
receipts, cash payments, and net change in cash
resulting from operating, investing, and financing
activities of an enterprise during a period, in a
format that reconciles the beginning and ending
cash balances.
CASH FLOW STATEMENT
It is a statement showing changes in cash position
of the firm from one period to another. It explains
the inflows (receipts) and outflows (disbursements)
of cash over a period of time. The inflows of cash
may occur from sale of goods, sale of assets,
receipts from debtors, interest, dividend, rent,
issue of new shares and debentures, raising of
loans, short-term borrowing, etc. The cash
outflows may occur on account of purchase of
goods, purchase of assets, payment of loans loss
on operations, payment of tax and dividend, etc.
CASH FLOW STATEMENT
1.
2.
3.
A cash flow statement is comprised of the
information regarding the following activities:
Operating Activities
Investing Activities
Financing Activities
Operating Activities
Involve the cash effects of transactions that enter
into the de-termination of net income, such as
cash receipts from sales of goods and services and...

...Deriving the Dividend Discount Model in the Intermediate Microeconomics Class
Stephen Norman Jonathan Schlaudraff Karianne White Douglas Wills*
May 2012
Abstract This paper shows that the dividend discount model can be derived using the basic intertemporal consumption model that is introduced in a typical intermediate microeconomic course. This result will be of use to instructors who teach microeconomics to finance students in that it demonstrates the value of utility maximization in obtaining one of the first stock valuation models used in basic finance. Keywords: Dividend Discount Model, Intertemporal Consumption, Microeconomics Instruction, Finance Instruction JEL Codes: A22, D90, G12
*Stephen Norman: Assistant Professor, University of Washington - Tacoma, 1900 Commerce Street, Tacoma, WA 98402, Phone: 253-692-4827, Fax: 253-692-4523, Email: normanse@uw.edu. Jonathan Schlaudraff: Student, University of Washington - Tacoma, 1900 Commerce Street, Tacoma, WA 98402, Phone: 253-692-4827, Fax: 253-692-4523, Email: jonathanschlaudraff@gmail.com. Karianne White: Student, University of Washington - Tacoma, 1900 Commerce Street, Tacoma, WA 98402, Phone: 253-692-4827, Fax: 253-692-4523, Email: karimarie84@yahoo.com. Douglas Wills (Corresponding Author): Associate Professor, University of Washington - Tacoma, 1900 Commerce Street, Tacoma, WA 98402, Phone: 253692-5626, Fax: 253-692-4523, Email: dtwills@uw.edu.
1
With the...

...The discount rate
Main article: Discount rate
The rate used to discount future cash flows to their present values is a key variable of this process.
A firm's weighted average cost of capital (after tax) is often used, but many people believe that it is appropriate to use higher discount rates to adjust for risk or other factors. A variable discount rate with higher rates applied to cash flows occurring further along the time span might be used to reflect the yield curve premium for long-term debt.
Another approach to choosing the discount rate factor is to decide the rate which the capital needed for the project could return if invested in an alternative venture. If, for example, the capital required for Project A can earn five percent elsewhere, use this discount rate in the NPV calculation to allow a direct comparison to be made between Project A and the alternative. Related to this concept is to use the firm's Reinvestment Rate. Reinvestment rate can be defined as the rate of return for the firm's investments on average. When analyzing projects in a capital constrained environment, it may be appropriate to use the reinvestment rate rather than the firm's weighted average cost of capital as the discount factor. It reflects opportunity cost of investment, rather than the possibly lower cost of capital.
An NPV calculated using variable...

...uniform
1. There are two Proposals. Proposal A and Proposal B. Both cost the amount of $ 60,000. The discount rate is 10%. The cash flows before depreciation and tax are as follows:
Year Proposal A Proposal B
$ $
0 (60,000) (60,000)
1 18,000 19,000
2 15,000 17,000
3 18,000 19,000
4 16,000 14,000
5 19,000 15,000
6 14,000 13,000
Evaluate the above proposals according to:
1. Pay Back Period.
2. Accounting Rate of Return (ARR)
3. Net present value method (NPV)
Proposal A is better than B, because ARR and NPV are higher than Proposal B
2. There are two Proposals. Proposal A and Proposal B. Proposal A costs $ 80,000 and Proposal B costs $ 100,000. The discount rate is 10%. The cash flows before depreciation and tax are as follows:
Year Proposal A Proposal B
$ $
1 13,000 15,000
2 15,000 14,000
3 18,000 19,000
4 16,000 16,000
5 19,000 13,000
6 14,000 13,000
7 16,000 19,000
8 20,000 15,000
9 0 18,000
10 0 17,000
Evaluate the above proposals according to:
1. ARR
2. NPV
3. Pay Back Period
We can select Proposal A, because ARR, NPV and PBP are positive and reject Proposal B
3.There are two Proposals. Proposal A and Proposal B. The discount rate is 8%. The cash flows before depreciation and...

...Dividend discount model
Dividend discount model (DDM) is a way of valuing a share based on the net present value of the dividends that you expect to receive in the future. According to the DDM, dividends are the cash flows that are returned to the shareholder.
FY 2002 2003 2004 2005 2006 2007F 2008F 2009F
Share price 0.155 0.150 0.230 0.370 0.450 0.450
Dividends per share 0.005 0.012 0.014 0.012 0.013 0.019 0.0178 0.020
Dividend Growth 0.0833 0.258 0.014 0.014
Dividend rates are expected to grow for FY2007 to $0.019 excluding the special dividend, and then grow at a constant rate for the next 2 years at a rate of 14%.
Forecasted Dividend Growth Rate =
= 3
= 0.14
According to the DDM, where dividends are expected to grow at a constant rate and the holding is perpetual, the value of the share is:
Where g is the dividend growth rate and r > g
Therefore,
P2007 =
P2007 =
P2007 = $0.37
Our assumptions
1. Shareholders' required rate of return, r remains constant at 18.77% from 2006 to 2008.
2. Dividends per share have been forecasted to increase to $0.19 in 2007 (exclusive of special dividend)
3. Dividend growth rate of 14% will be constant only for the next 2 years from year 2008 and 2009.
Analysis
In the DDM valuation model, Shareholders' required rate of return, Re is assumed to be constant at 18.77% from 2006 to 2008 where dividends are assumed to grow at 14%. The...

...Finance 3303 Business Finance Chapter 11 Practice Problems
1. Two investment opportunities have the following expected cash flows. If your minimum required return is 27%, which proposal would be the best based on the Net Present Value evaluation method?
Investment A Investment B
Year 0 $( 567,000) $( 577,000)
Year 1 $ 254,000 $ 256,000
Year 2 $ 287,000 $ 281,000
Year 3 $ 260,000 $ 290,000
Year 4 $ 155,000 $ 145,000
A) Neither proposal would add value.
B) Choose Proposal A because it has the highest IRR.
C) Choose Proposal A because it has the highest NPV.
D) Choose Proposal B because it has the highest IRR.
E) Choose Proposal B because it has the highest NPV.
Answer: A [NPV for A: $(2,548); NPV for B: $(3,892)]
2. You’re evaluating a proposed business project and you want to know what is the Internal Rate of Return. Based on the following estimated Free Cash Flows and the IRR method, would this project be accepted? Your required return is 16%.
Year 0 1 2 3 4
Cash Flow $(963,500) $420,899 $510,000 $312,200 $144,000
A) No, because the IRR is less than 16%, it’s 18.94%.
B) Yes, because the NPV is $57,900.
C) No, because the IRR is lower than 16%, it’s 11.98%
D) Yes, because the IRR is higher than 16%, it’s 19.46%
E) No, because the IRR is less than 16%, it’s 5.09%.
Answer: D [IRR = 19.46% and NPV = +$57,900]
3. A business...

...THE DIRECT D E T E R M I N A T I O N of RISK-ADJUSTED DISCOUNT RATES and LIABILITY BETA
RUSSELL E. BINGHAM T H E H A R T F O R D FINANCIAL SERVICES G R O U P
Table of Contents
Page 2 3 5 7 8 11 12 13 14 14 15 16 17 17
18
Subject Abstract 1. Summary 2. Total Return Model 3. After-Tax Discounting 4. Derivation of Risk-Adjusted Discount Rate and Liability Beta Figure l : Baseline Risk / Return Line vs Leverage 5. Liability Beta Figure 2: Equity vs Liability Beta Figure 3: Equity Beta vs Risk-Adjusted Discount Rate (After-Tax) 6. Underwriting Profit Margin Figure 4: Underwriting Profit Margin vs Loss Payout Figure 5: Underwriting Profit Margin vs Investment Yield Figure 6: Underwriting Profit Margin vs Market Risk Premium Figure 7: Underwriting Profit Margin vs Leverage 7. Conclusion Related Background Reference Reading Appendix - Example Exhibit I - Balance Sheet, Income, Cash Flow and Rates of Return Exhibit II - Net Present Value Without Risk Adjustment Exhibit I I I - Net Present Value With Risk Adjustment Exhibit IV - Myers-Cohn "Fair" Premium With After-Tax Discounting
19 20 23 24 25 27
Abstract
The development of a complete financial structure including balance sheet, income and cash flow statements, coupled with conventional accounting and economic valuation rules, provides the foundation from which risk-adjusted discount rates and liability betas can be determined. Since liability betas...