Part 1. Determine de Present Worth and viability of the accompaying geometric se
ID: 2614637 • Letter: P
Question
Part 1. Determine de Present Worth and viability of the accompaying geometric sequence of cash flows.
Use: i = 12%
A8= $3,000 in the fourth year
From year 5 to 15 increase by f= 8%
Part 2. For the following cash flow compute: (Determine viability)
Part (60%) [10 pts/item) 1. Determine the Present Worth PW and the viability of the accompanying geometric sequence of cash flows. Use i#12% . Let A8-$3,000 in the fourth year, from year five to fifteen increase by f 890. 3000(1.08) 3000 1.08) A8-3000 1234 5678 9 10 11 12 13 14 A-2000 Po 2. A series of $550 payments are made at the end of each quarter for 32 quarters at a nominal interest rate of 6% per year compounded quarterly a. What is the present worth (PW) of this cash flow? 3. A small company purchased now for $340,000 will lose $12,200 each year the first five years. An additional $20,000 invested in the company during the third year will result in a profit of $60,000 each year from the ten year through the twenty-five year. An additional investment of $10,000 is required at the fifteen and twenty year. At the end of 25 years, the company can be sold for $40,000. The MARR is 6% per year. a. What is the present worth of this investment? ,Would you recommend buying this company? 4" What will be the balance at the end of 15 years for $30,500 now at 8% annual interest, interest is: if compound a. semiannually b.weekly c.monthly d.continuously 5. Suppose that a firm wishes to create an endowment for a Library. It will earn an interest of 10% per year Cash requirement are estimated to be $450,000 (to establish i), $80,000 per year indefinitely. Also $20,000 every five years and $45,000 every ten years for facilities replacement indefinitely requirements? a. What amount of endowment principal is required to support remaining cash An investor 6, A $800,000 face-value bond matures in four years and pays 6% per year payable quarterly wants a 12% return per year compounded. a. How much should the investor pay for the bond?Explanation / Answer
(1) The cash flow scenario consists of two cash flow series. The first series is a cash inflow series beginning at the end of Year 4, with an inflow of $3000 and continuing from Year 5 to Year 15 at an annual growth rate of 8 %.
Further, g = 8 % and i = 12 %
The second series comprises of cash outflows of $2000 each beginning at the end of Year 4 and continuing up to end of Year 12.
At end of Year 3, the first series constitutes a growing annuity and the second series constitutes a normal annuity.
PV of First Cash Flow Series at end of Year 3 = 3000 x {1/(0.12 - 0.08)} x [1-{(1.08) / (1.12)}^(12)] = $ 26523.63
PV of Second Cash Flow Series at end of Year 3 = 2000 x (1/0.12) x [1-{1/(1.12)^(9)}] = $ 10656.49
Net PV of the two cash flow series at end of Year 3 = 26523.63 - 10656.49 = $ 15867.14
PV of Net Cash Flow at end of Year 0 (current time) = PW of the Cash Flow series = 15867.14 / (1.12)^(3) = $ 11293.92
As the PW of the cash flow series is positive, the cah flow scenario is economically viable.
NOTE: Please raise separate queries for the solution to the unrelated second question.