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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
Period               2

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
Period                     36

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
Rebate                    \$5,000

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
(\$19,265)

Financial Accounting, Accounting

• Category:- Financial Accounting
• Reference No.:- M93887

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