Adequate information: Stream’s A first cash flow received three years from = $11,600 Growth rate for Stream A= 4% Stream B’s first cash flow received two years from today= -$13,000 Discount rate= 12% To compute: Present value of each stream Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

Question

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Answer 1

Question

Chapter 5, Problem 28QAP

a.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from = $11,600

Growth rate for Stream A= 4%

Stream B’s first cash flow received two years from today= -$13,000

Discount rate= 12%

To compute: Present value of each stream

Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

b.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To compute: IRR of Project C

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

c.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To discuss: The correct IRR rule for Project C.

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

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Consider two streams of cash flows, A and B. Stream A’s first cash flow is $9,800 and is received three years from today. Future cash flows in Stream A grow by 3 percent in perpetuity. Stream B’s first cash flow is −$9,100, is received two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 11 percent. a. What is the present value of each stream? b. Suppose that the two streams are combined into one project, called C. What is the IRR of Project C?

Consider two streams of cash flows, A and B. Stream A's first cash flow is $10,000 and is received three years from today. Future cash flows in Stream A grow by 3 percent in perpetulty. Stream B's first cash flow is -$8,900, is received two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 11 percent. a. What is the present value of each stream? (A negative amount should be indicated by a minus sign. Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Stream A Stream B b. Suppose that the two streams are combined into one project, called C. What is the IRR of Project C? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR % c. What is the correct IRR rule for Project C? Accept the project if the discount rate is equal the IRR. O Accept the project if the discount rate is above the IRR. Accept the project if the discount rate is…

Calculate the present value at t=0 (now) of the following cash flows: D. $100 every 3 years forever, with the first payment at t=3 (t counts years), where the effective annual rate is .05 (i.e. 5%) E. $1000 every 3 years forever, with the first payment at t = 3 (t counts years), where the effective annual rate is .05 (i.e., 5%). F. $1000 every 3 years forever, with the first payment at t = 3 (t counts years), where the effective annual rate is .10 (i.e., 10%).

Answer 2

Question

Chapter 5, Problem 28QAP

a.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from = $11,600

Growth rate for Stream A= 4%

Stream B’s first cash flow received two years from today= -$13,000

Discount rate= 12%

To compute: Present value of each stream

Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

b.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To compute: IRR of Project C

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

c.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To discuss: The correct IRR rule for Project C.

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

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Answer 3

Question

Chapter 5, Problem 28QAP

a.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from = $11,600

Growth rate for Stream A= 4%

Stream B’s first cash flow received two years from today= -$13,000

Discount rate= 12%

To compute: Present value of each stream

Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

b.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To compute: IRR of Project C

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

c.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To discuss: The correct IRR rule for Project C.

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

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Answer 4

Question

Chapter 5, Problem 28QAP

a.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from = $11,600

Growth rate for Stream A= 4%

Stream B’s first cash flow received two years from today= -$13,000

Discount rate= 12%

To compute: Present value of each stream

Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

b.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To compute: IRR of Project C

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

c.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To discuss: The correct IRR rule for Project C.

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

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Answer 5

Chapter 5, Problem 28QAP

a.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from = $11,600

Growth rate for Stream A= 4%

Stream B’s first cash flow received two years from today= -$13,000

Discount rate= 12%

To compute: Present value of each stream

Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

b.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To compute: IRR of Project C

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

c.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To discuss: The correct IRR rule for Project C.

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

Answer 6

Chapter 5, Problem 28QAP

a.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from = $11,600

Growth rate for Stream A= 4%

Stream B’s first cash flow received two years from today= -$13,000

Discount rate= 12%

To compute: Present value of each stream

Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

Answer 7

Chapter 5, Problem 28QAP

a.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from = $11,600

Growth rate for Stream A= 4%

Stream B’s first cash flow received two years from today= -$13,000

Discount rate= 12%

To compute: Present value of each stream

Introduction: Present value is also known as a present discounted value, in which the future value of cash inflows and discount rate are known.

Answer 8

b.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To compute: IRR of Project C

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

Answer 9

b.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To compute: IRR of Project C

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

Answer 10

c.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To discuss: The correct IRR rule for Project C.

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

Answer 11

c.

Summary Introduction

Adequate information:

Stream’s A first cash flow received three years from =$11,600

Growth rate for Stream A=4%

Stream B’s first cash flow received two years from today=-$13,000

Discount rate=12%

To discuss: The correct IRR rule for Project C.

Introduction: IRR is the rate at which the NPV of a project is zero, that is, the present value of aggregate cash inflows is the same as the aggregate cash outflows.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 5 - Payback Period and Net Present Value If a project...Ch. 5 - Net Present Value Suppose a project has...Ch. 5 - Comparing Investment Criteria Define each of the...Ch. 5 - Payback and Internal Rate of Return A project has...Ch. 5 - Prob. 5CQ Ch. 5 - Capital Budgeting Problems What are some of the...Ch. 5 - Prob. 7CQ Ch. 5 - Prob. 8CQ Ch. 5 - Net Present Value versus Profitability Index...Ch. 5 - Internal Rate of Return Projects A and B have the...

Solution Summary: The author explains the present value of Stream A, a first cash flow received three years from = 11,600 Growth rate, and the discount rate.

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