Question 1. You are analyzing the net present value of a project over a 16 year period. Based on the rates in the textbook, what is the actual discount rate you would use given that your analysis must consider the effects of inflation/deflation?
Risk free rate + inflation rate - deflation rate + premium
Question 2. What is the present value of $25,000 that you will receive at the end of two years?
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Now, assuming the following variables:
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Risk free rate
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3.8450%
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Inflation rate
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2.0000%
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Premium
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3.0000%
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Discount rate
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8.8450%
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Cash flow
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$25,000
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Period
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2
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Present value
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$ 21,101.97
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Question 3. What is the present value of $2,000 a month over the next 3 years?
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Cash flow
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$2,000
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Period
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36
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Present value
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$21,542.03
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Question 4. Cash Flow Scenario: Lease. Annual payments of $50,000 paid at the beginning of each of the next five years (total of $250,000). What is the NPV of all lease payments?
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Annual payments
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$50,000
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Payment period
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5
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Present value
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$212,538.64
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Question 5. What is the net present value of a lease that requires you to pay $10,000 at the beginning of each year for the next five years and includes a provision for a rebate of $5,000 at eh end of Year 5?
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Annual payments
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$10,000
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Payment period
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5
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Rebate
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$5,000
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Present value
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$39,234.87
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32507.73
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Question 6. What is the net present value of an item that has a purchase price of $20,000, requires $1,000 maintenance at the end of each year except year 4, and is expected to have a salvage valueof $1,000 at the end of the 5 year useful life?
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Cash flow table
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Year
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Item
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Cash flow
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PV Factor
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NPV
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0
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Purchase price
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($20,000)
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1.0000
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($20,000)
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1
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Maintenance
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($1,000)
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0.9187
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($919)
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2
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Maintenance
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($1,000)
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0.8441
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($844)
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3
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Maintenance
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($1,000)
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0.7755
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($775)
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4
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5
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Salvage value
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$5,000
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0.6546
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$3,273
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($19,265)
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