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You receive a stream of cash flow of $2,200 per year forever with the first payment started four years from now. What is the present value of these cash flows today if interest rate is 10%?

You plan to borrow $35,000 at a 7.5% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying inYear 2?

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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You are evaluating an investment that will pay ​$70 in 1​ year,and it will continue to make payments at annual intervals​thereafter, but the payments will grow by 3​% forever.

a. What is the present value of the first ​$70 payment if thediscount rate is 11​%?

b. How much cash will this investment pay 100 years from​ now?What is the present value of the 100th​ payment? Again use a 11​%discount rate.

c. What is the present value of the entire growing stream ofperpetual cash​ flows?

d. Explain why the answers to parts a and b help to explain whyan infinite stream of growing cash flows has a finite presentvalue.

Assignment Problems –Discounted Cash Flow Valuation

1) A first round draft choice quarterback has been signed to a three year $25 million contract. The details provide for an immediate cash bonus of $2 million. The player is to receive $5 million in salary at the end of the first year ,$8 million the next, and $10 million at the end of the last year. Assuming a 15 per cent discount rate , is this package worth $25 million. If not how much is it worth?

2) You are looking into an investment that will pay you $12000 per year for the next 10 years. If you require a 15 per cent return , what is the most you would pay for this investment

3) Suppose you borrow $10,000. You are going to repay the loan by making equal annual payments for five years. The interest rate on the loan is 14 per cent per year. Prepare an amortization schedule for the loan. How much interest will you pay over the life of the loan.

A. You've just joined the investment banking firm of Dewey, Cheatum, and Howe. Theyve offered you two different salary arrangements. You can have $95,000 per year for he next two years, or you can have $70,000 per year for the next two years, along with a $45,000 signing bonus today. The bonus is paid immediately, and the salary is paid at the end of each year. If the interest rate is 10 percent compounded monthly, which do you prefer?

B. Consider a firm with a contract to sell an asset for $165,000 four years from now. The asset costs $94,000 to produce today. Given a relevant discount rate on this asset of 13 percent per year, will the firm make a profit on this asset?

C. You borrow $50,000 5 year loan to make renovations to a house. The interest rate on this loan is 8% per year. The loan calls for equal monthly payments.

C. 1. What is the monthly payment on this loan?

C. 2. When you make the third payment, how much of the payment is interest?

C. 3. How much is principal?

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