(Part 1)You are about to invest $15,000 into a project that will generate $5,500 of cash...
- (Part 1)You are about to invest $15,000 into a project that
will generate $5,500 of cash flows each year for the next 3 years.
If your cost of capital is 11%, then the present value of future
cash flows is:
- -$1,559
- $1,559
- $1,029
- -$1,029
- (Part 2)The present value of the following cash flow stream at an interest rate of 10% per year is closest to:
$0 at Time 0;
$1,500 at the end of Year 1;
$3,000 at the end of Year 2;
$4,500 at the end of Year 3
- $6,934
- $3,559
- $2,329
- $7,329
Homework Answers
Present value of this cash flow = -15000 + 5500 * (1 – 1.11^-3)/0.11 = -1559. Hence select option A
Present value of this cash flow = 1500(P/A, 10%, 3) + 1500(P/G, 10%, 3) = 1500*2.4869 + 1500*2.3291 = 7223. Hence select option D.
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