Question 1 Find the following values for a single cash flow:
a. The future value of $500 invested at 8 percent for one year.
b. The future value of $500 invested at 8 percent for five years.
c. The present value of $500 to be received in one year when the opportunity cost rate in 8 percent.
d. The present value of $500 to be received In five years when the opportunity cost rate is 8 percent.
Question 2
Consider the following net cash flows
Year Cash Flow
0 $2000
1 $2,000
2 0
3 1,500
4 2,500
5 4,000
a. What is the net present value of the stream if the opportunity cost of capital is 10 percent?
b. What is the value of the stream at the end of year 5 if the cash flow are invested in an account that pays 20 percent annually?
C. What cash flow today (year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of year 5? (Assume that the cash flows for year 1 through 5 remain the same.)
Question 3 Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you to analyze two proposed capital investments - Project X and project Y. Each project requires a net investment outlay of $10,000, and the opportunity cost of capital for each project is 12 percent. The projects' expected net cash flows are as follows:
|
Year
|
Project X
|
Project Y
|
|
0
|
($10,000)
|
($10,000)
|
|
1
|
6,500
|
3,000
|
|
2
|
3,000
|
3,000
|
|
3
|
3,000
|
3,000
|
|
4
|
1,000
|
3,000
|
a. Calculate each project's payback, NPV and IRR
b. Which project (or projects) is financially acceptable? Explain your answer.