#2 Eulis Co. has identified an investment project with the following cash flows.

Question

#2

Eulis Co. has identified an investment project with the following cash flows. Year 2 4 Cash Flow $1,150 1,030 1,520 1,880 If the discount rate is 11 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present valueS What is the present value at 16 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present valueS What is the present value at 22 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Present valueS

Explanation / Answer

1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

a.Present value=1150/1.11+1030/1.11^2+1520/1.11^3+1880/1.11^4

=$4221.83(Approx).

b.a.Present value=1150/1.16+1030/1.16^2+1520/1.16^3+1880/1.16^4

=$3768.94(Approx).

c.a.Present value=1150/1.22+1030/1.22^2+1520/1.22^3+1880/1.22^4

which is equal to=$3320.35(Approx)

2.

EAR=(1+APR/m)^m-1
where m=compounding periods

0.16=(1+APR/365)^365-1

(1+0.16)=(1+APR/365)^365

APR=[(1+0.16)^(1/365)-1]*365

which is equal to

=14.85%(Approx).

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