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4.1 & 4.2 CHAPTER 9: TIME VALUE ANALYSIS Homework Problem 4.1 Find the following values for a lump sum assuming annual compounding: a.The future value of $500 invested at 8% for one year b.The future value of $500 invested 8% for five years c.The present value of $500 to be received in one year when the opportunity cost rate is 8% d.The present value of $500 to be received in five years when the opportunity cost rate is 8% Homework Problem 4.2 Find the following values assuming a regular, or ordinary, annuity: a.The present value of $400 per year for 10 years at 10% b.The future value of $400 per year for 10 years at 10% c.The present value of $200 per year for five years at 5% d.The futrue value of $200 per year for five years at 5% 4.3 CHAPTER 9: TIME VALUE ANALYSIS Homework Problem 4.3 Consider the following uneven cash flow stream: YearCash Flow 0$2,000 12,000 20 31,500 42,500 54,000 a.What is the present (Year 0) value of the cash flow steam if the opportunity cost rate is 10%? $9,136.37 b.What is the future (Year 5) value of the cash flow stream if the cash flows are invested in an account that pays 10% annually? YearCash FlowFuture Values 0$2,000$3,221.02 12,000$2,928.20 20$0.00 31,500$1,815.00 42,500$2,750.00 54,000$4,000.00 Total$14,714.22 4.4 CHAPTER 9: TIME VALUE ANALYSIS Homework Problem 4.4 Assume that you just $35 million in the Texas lottery, and hence the state will pay you 20 annual payments of $1.75 million at the end of each year. The rate of return on securities of similar risk to the lottery earning (e.g., the rate on 20-year U.S. Treasury bonds) is 6%. a.What is the present value of your willings? b.You are now given the following options for distributing your winnings: Option 1: lump sum payment of the entire amount Option 2: annual payments as described above Which option would you choose? Why? 4.5 CHAPTER 14: CAPITAL BUDGETING Homework Problem 4.5 West Plains Clinic is evaluating a project that costs $52,125 and has expected net cash inflows of $12,000 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 12 percent. a.What is the project's payback?4.34375 b.What is the project's NPV? c.What is the project's IRR? d.What is the MIRR? e.Is the project financially acceptable? Explain your answer. 4.6 CHAPTER 14: CAPITAL BUDGETING Homework Problem 4.6 Healthy Valley Medical Center is evaluating two investment projects, each of which requires an up-front expenditure of $1.5 million. The projects are expected to produce the following net cash inflows: YearProject AProject B 1500,0002,000,000 21,000,0001,000,000 32,000,000600,000 a.What is each project's IRR? Project AProject B b.What is each project's NPV if the cost of capital is 10%? Project AProject B 4.7 CHAPTER 14: CAPITAL BUDGETING Homework Problem 4.7 Assume that you are the COO at Cactus Valley Medical Center. 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 cost of capital for each project is 12 percent. The expected net cash flows for each project are as follow: YearProject XProject Y 16,5003,000 23,0003,000 33,0003,000 41,0003,000 a.Calculate each project's payback period, net present value (NPV), and internal rate of return (IRR). Project XProject Y PB period NPV IRR b.Which project(s) is/are financially acceptable? Explain your answer.