000 at the end of the 9th year. In transaction (a)‚ determine the present value of the debt. 1. We find PV of ANnuity of $1 for 9 Yrs at 9% = 5.9952 PV of $1 for 9Yrs @9% = 0.4604 So PV of debt = 9270*5.9952 + 103000*0.4604 = $1‚02‚997 b. Established a plant addition fund of $520‚000 to be available at the end of year 8. A single sum that will grow to $520‚000 will be deposited on January 1‚ 2011. In transaction (b)‚ what single sum amount must the company deposit on January 1‚ 2011? PV
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Net Present Value/Present Value Index The management team at Savage Corporation is evaluating two alternative capital investment opportunities. The first alternative‚ modernizing the company’s current machinery‚ costs $45‚000. Management estimates the modernization project will reduce annual net cash outflows by $12‚500 per year for the next five years. The second alternative‚ purchasing a new machine‚ costs $56‚500. The new machine is expected to have a five-year useful life and a $4‚000
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Net present Value‚ Mergers and acquisitions Abstract Main objective of undertaking this to report was learn about NPV present value (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 -win situation for both corporations Now I will discuss both parts in detail
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Essay. Net Present value 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 present value An Investment should be accepted if the net present value is positive and it should be rejected if the net present value is negative. Net present value uses the discounted
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Present Value is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate‚ and the higher the discount rate‚ the lower the present value of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows‚ whether they be earnings or obligations. Present Value of annuity is a series of equal payments or receipts that occur at evenly spaced intervals
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Present value is where the value on a set date of a future payment is discounted to reflect the time value of money and other factors. This can also apply to a series of future payments. Present value calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Present value can be described as the current worth of a future sum of money or stream of cash flows given a specified rate of return. (http://www.getobjects.com) Future cash flows
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. 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 present value 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 = $3‚000[(1.08540 – 1) / .085] FVA for 40
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Week 1 Capital Budgeting I Tutorial: Chapter 1‚ 2 Chapter 1 Introduction to Corporate Finance Question 3: Investment and financing decisions Vocabulary test. Explain the differences between: a. Real and financial assets. b. Capital budgeting and financing decisions c. Closely held and public corporations d. Limited and unlimited liability. Answer a. Financial assets‚ such as stocks or bank loans‚ are claims held by investors. Corporations sell financial assets to raise
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independence f. dictate maximum compensation levels g. establish compliance programs h. establish ethics programs 3.) One reason for the existence of agency problems between managers and share holders is that i. there is a separation of ownership and management of the firm. j. managers know how to manage the firm better than shareholders. k. shareholders have unreasonable expectations about managerial performance. l. none of the above 4.) Which of the
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1. If you deposit $10‚000 in a bank account that pays 10 percent interest annually‚ how much money will be in your account after 5 years? 2. What is the present value of a security that promises to pay you $5‚000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk. 3. If you deposit money today into an account that pays 6.5 percent interest‚ how long will it take for you to double your money? 4. Your parents are planning to retire in 18
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