Will you be able to know the answers for Chapter 6, Ross, Finance? Investment X

Question

Will you be able to know the answers for Chapter 6, Ross, Finance?

Investment X offers to pay you $5,400 per year for 9 years, whereas Investment Y offers to pay you $7,500 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.)

If the discount rate is 21 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.)

2.

If the required return is 5 percent, what is the value of the investment? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

What would the value be if the payments occurred for 35 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

What would the value be if the payments occurred for 65 years? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

What would the value be if the payments occurred forever? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

$   

Investment X offers to pay you $5,400 per year for 9 years, whereas Investment Y offers to pay you $7,500 per year for 5 years.

Explanation / Answer

Monthly Payment: $5000

Time: 9 Yrs

Discount rate: 6%

Present value is calculated but discounting cash flows for each year when they are paid.

Thus present value = $36729.14

Similarly present value of Investment Y = $31592.72

Suppose discount rate is change to 21%

Present value of Investment X = $21089.35

Present value of Investment Y = $21944.88

Part 1

Present value usinf same method as above = $39380.84

Part 2

Present value = $83508.39

Part 3

Present value: $97721.45

Part 4

Perpetual payments = $102000

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