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Presentation/PPT
27/08/2022
3. John has just won the Flyball Lottery. He has two options for receiving his prize. The first option is to accept a $135,000 cash payment today. The second option is to receive $17,700 at the end of each of the next 19 years and a $37,900 lump sum payment in the 20th year. John can invest money at a 10% rate.(a) Calculate the present value of the two options. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.) Option 1 Option 2
Present value ? ?Which option should John choose to receive his winnings? (b) If John could invest money at 13%, calculate the present value of the two options. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.) Option 1 Option 2
Present value ? ?Which option should he choose?
4.Flounder’s Lawn Service needs to purchase a new lawnmower costing $8,416 to replace an old lawnmower that cannot be repaired. The new lawnmower is expected to have a useful life of 6 years, with no salvage value at the end of that period.(a)If Flounder’s required rate of return is 11%, what level of annual cash savings must the lawnmower generate to be considered an acceptable investment under the net present value method? (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)Annual cash savings should be$enter the annual cash savings in dollars
(b)If Flounder’s required rate of return is 18%, what level of annual cash savings must the lawnmower generate to be considered an acceptable investment under the net present value method? (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)Annual cash savings should be$enter the annual cash savings in dollars
5.The Bramble Company is planning to purchase $487,000 of equipment with an estimated 7-year life and no estimated salvage value. The company has projected the following annual cash flows for the investment:Year Projected Cash Flows
1 $207,000
2 132,000
3 109,000
4 51,700
5 61,200
6 44,400
7 46,300
Total $651,600a. Calculate the net present value of the proposed equipment purchase. Bramble uses a 6% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)?
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