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Npv

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Albany State University
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1. ACTIVITY: TIME VALUE OF MONEY AND
DISCOUNTED CASH FLOW ANALYSIS PRACTICE
Complete the following and submit in a Word document. Be sure to show your
process and calculations: As a financial analyst, you have been brought in to help
various organizations or individuals to make decisions on possible financial
investments that have been presented to them. Solve each of these problems using
standard discounted cash flow analysis techniques.
1. Living Color Co. is facing a decision on a pending project with the following
cash flows. If the required return for the project is 9.9 percent, what is the
project's NPV? Should Living Color move forward with the project? Show all
calculations to arrive at the NPV.
Living Colo Cash Flow
Year
Cash Flow
0
-31,870
1
8,570
2
10,370
3
14,960
4
16,410
5
11,540
Answer













The project's NPV is $14,231.42. Living Color move should move
forward with the project since the NPV is positive.
2. Kathy Flemings is planning on buying a new car in seven years. She thinks
that she will need about $25,000. She has decided to invest $2,500 today
and will do so at the beginning of each of the next six years for a total of
seven payments. If her investment can earn 12 percent annually, how much
will she have at the end of seven years? Will this be enough for her new
car? Show all calculations to arrive at this answer.
Answer












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She will have $28,249.23 at the end of seven years, that is more than
$25,000, therefore this will be enough for her new car.
3. Foodelicious Corp. is evaluating whether it should purchase an ethnic
restaurant in Manhattan. The current owner had originally signed a 25-year
lease, of which 16 years still remain. Foodelicious Corp. expects the
restaurant to continue to have sales (and net cash flows) of about the same
for the remainder of the lease. Last year, the restaurant brought in net cash
flows of $310,000. The current owner is asking $1,950,000 for the business.
If Foodelicious evaluates similar investments using a 15 percent discount
rate, what is the present value of this investment? Should it take over the
investment? Show all calculations to help Foodelicious make a decision.
Answer
We have 16 payments of 310000, we can find the present value of
these 16 cash flows.










The present value of this investment is $1,842,812.81. It should take
over the investment since it’s more than the net present value.
4. Mary Lynn Sirianni believes that she will need $750,000 in an IRA
investment to live a comfortable life when she retires in 30 years. She is
offered an IRA investment that will require her to invest $3,000 a year for
the next 30 years, starting at the end of this year. The investment will earn
13 percent annually. How much will she have at the end of 30 years?
Should she make this investment? Show all calculations to help her make a
decision.
Answer









She will have $879,597.65 at the end of 30 years. Therefore, she should
make this investment.

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1. ACTIVITY: TIME VALUE OF MONEY AND DISCOUNTED CASH FLOW ANALYSIS PRACTICE Complete the following and submit in a Word document. Be sure to show your process and calculations: As a financial analyst, you have been brought in to help various organizations or individuals to make decisions on possible financial investments that have been presented to them. Solve each of these problems using standard discounted cash flow analysis techniques. 1. Living Color Co. is facing a decision on a pending project with the following cash flows. If the required return for the project is 9.9 percent, what is the project's NPV? Should Living Color move forward with the project? Show all calculations to arrive at the NPV. Living Colo Cash Flow Year Cash Flow 0 -31,870 1 8,570 2 10,370 3 14,960 4 16,410 5 11,540 Answer 𝑵𝑷𝑽 = −𝟑𝟏𝟖𝟕𝟎 + 𝟖𝟓𝟕𝟎 𝟏𝟎𝟑𝟕𝟎 𝟏𝟒 ...
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