FINS1613 Quiz: FINS1613 Quiz 1 Question Bank Discounting Question C

Explain the importance of a time line.

Present value with multiple cash fl ows: Carol Jenkins, a lottery winner, will receive the following
payments over the next seven years. If she can invest her cash fl ows in a fund that will earn
10.5 percent annually, what is the present value of her winnings?
$200,000 $250,000 $275,000 $300,000 $350,000 $400,000 $550,000
1 2 3 4 5 6 7 Year

Each of the following scenarios is independent. Assume that all cash ?ows are after-tax cash ?ows. a. Colby Hepworth has just invested $400,000 in a book and video store. She expects to receive a cash income of $120,000 per year from the investment. b. Kylie Sorensen has just invested $1,400,000 in a new biomedical technology. She expects to receive the following cash ?ows over the next ?ve years: $350,000, $490,000, $700,000, $420,000, and $280,000. c. Carsen Nabors invested in a project that has a payback period of four years. The project brings in $960,000 per year. d. Rahn Booth invested $1,300,000 in a project that pays him an even amount per year for ?ve years. The payback period is 2.5 years. Required: 1. What is the payback period for Colby? 2. What is the payback period for Kylie? 3. How much did Carsen invest in the project? 4. How much cash does Rahn receive each year?

what is the net present value of the following set of cash flows at a discount of 7.00%? at 20.00%

Time period Cash flow

0 $(-17,000)

1 4,500

2 8,700

3 11,900