Time value of money exercises:
Problem 1) What is the present value of the following series of cash flows discounted at 12 percent: $40,000 now; $50,000 at the end of the first year; $0 at the end of year the second year; $60,000 at the end of the third year; and $70,000 at the end of the fourth year?
|
Year
|
Income
|
|
1
|
$3,000
|
|
2
|
$4,000
|
|
3
|
$6,000
|
|
4
|
$1,000
|
Problem 2. Assume an income-producing property is priced at $5,000 and has the following income stream (year 1, $1,000; year 2, -$2,000; year 3, $3,000; and year 4, $3,000). Would an investor with a required rate of return of 15 percent be wise to invest at the current price?
Problem 3. Calculate the present value of the income stream given below assuming discount rates of 8 percent and 20 percent.
Problem 4. Calculate the IRR and NPV for the following investment opportunities. Assume a 16 percent discount rate for the NPV calculations:
|
Year
|
Project 1 Cash Flow
|
Project 2 Cash Flow
|
|
0
|
-$10,000
|
-$10,000
|
|
1
|
1,000
|
1,000
|
|
2
|
2,000
|
12,000
|
|
3
|
12,000
|
1,800
|