MindTap Cengage Learning x CSecure https:/ing html?mbld 851105&nbNodeld-32808660
ID: 2614138 • Letter: M
Question
MindTap Cengage Learning x CSecure https:/ing html?mbld 851105&nbNodeld-328086606;&deployment; MINDTAP Assignment 05-Time Value of Money Consider the following case: The Purple Lion Beverage Company expects the folowing cash flows from its manufacturing pant in Palau over the next three years: Annual Cash Flows Year 1 Year 2 Year 3 $100,000 $37,S00 $40,000 The CFO of the company belleves that an appropriate annual interest rate on this investment is 4% What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? O $617,500 O $1,475,000 O $557,543 o $1,992,500 tdentify whether the situations described in the following table are examples of uneven cash flows or annuity payments: Uneven Cash Flows Annuity Description You recently moved to a new apartment and signed a contract to pay monthly rent to your landlord for a year. SOE Corp, hires an average of 10 people every year and matches the contribution of each employee toward his or her retirement fund Franklinia Venture Capital (FVC) invested in a budding entrepreneur's restaurant. The restaurant owner promises to pay FVC 10% of the profit each month for the next 10 years You have committed to deposit $600 in a fixed interest-bearing account every quarter for four years. MacBook AirExplanation / Answer
Present Value of the uneven cash flow stream = $557,543
= $100,000 x [PVF 4%, 1 Year] + $37,500 x [PVF 4%, 2 Year] + $480,000 x [PVF 4%, 3 Year]
= [ $100,000 x 0.96154 ] + [ $37,500 x 0.92456 ] + [ $480,000 x 0.88899 ]
= $96,154 + 34,671 + 426,718
= $557,543
Description
Type of cash flow
You recently moved to a new apartment and signed a contract to pay monthly rent to your landlord for a year
Annuity Payments
SOE Corp, hires an average of 10 peoples every year and matches the contribution of each employee towards his or her retirement fund
Uneven cash flows
Frankinia venture capital invested in a bussing entrepreneurs restaurant. The restaurant owner promises to pay FVC 10% of profit each month for the next 10 years
Uneven cash flows
You have committed to deposit $600 in a fixed interest bearing account every quarter for four years
Annuity Payments
Description
Type of cash flow
You recently moved to a new apartment and signed a contract to pay monthly rent to your landlord for a year
Annuity Payments
SOE Corp, hires an average of 10 peoples every year and matches the contribution of each employee towards his or her retirement fund
Uneven cash flows
Frankinia venture capital invested in a bussing entrepreneurs restaurant. The restaurant owner promises to pay FVC 10% of profit each month for the next 10 years
Uneven cash flows
You have committed to deposit $600 in a fixed interest bearing account every quarter for four years
Annuity Payments