You have been asked to support analysis of acquisition decisions involving net present value analysis.
problem 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
problem 2: What is the present value of $25,000 that you will receive at the end of two years?
Now, assuming the following variables:
Risk free rate 3.8450%
Inflation rate 2.0000%
Discount rate 8.8450%
Cash flow $25,000
Present value $ 21,101.97
problem 3: What is the present value of $2,000 a month over the next 3 years?
Cash flow $2,000
Present value $21,542.03
problem 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?
Annual payments $50,000
Payment period 5
Present value $212,538.64
problem 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?
Annual payments $10,000
Payment period 5
Present value $39,234.87 32507.73
problem 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 value of $1,000 at the end of the 5 year useful life?
Cash flow table:
Year Item Cash flow PV Factor NPV
0 Purchase price ($20,000) 1.0000 ($20,000)
1 Maintenance ($1,000) 0.9187 ($919)
2 Maintenance ($1,000) 0.8441 ($844)
3 Maintenance ($1,000) 0.7755 ($775)
4 Salvage value $5,000 0.6546 $3,273