# Time Value of Money

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If you put up $21,000 today in exchange for a 9.25 percent, 17-year annuity, the annual cash flow will be $ . (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Your company will generate $61,000 in cash flow each year for the next 9 years from a new information database. The computer system needed to set up the database costs $292,000. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

If you can borrow the money to buy the computer system at 8.5 percent annual interest, the present value of the savings is $ .

The present value of the revenue greater than the cost, so your company afford the equipment

If you deposit $1,700 at 8 percent interest at the end of each of the next 18 years you will have $ in the account. If you make deposits for 36 years, you will have $ in the account at the end of 36 years. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Curly's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $15,000 per year forever. If the required return on this investment is 10 percent, you will pay $ for the policy. (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Present Value and Multiple Cash Flows

Ancelet Co. has identified an investment project with the following cash flows. If the discount rate is 9 percent, the present value of these cash flows is $ . If the discount rate is 17 percent, the present value of these cash flows is $ . If the discount rate is 28 percent, the present value of these cash flows is $ . (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Year Cash Flow

1 $ 1,000

2 700

3 800

4 1,680

________________________________________

Calculating Annuities Due

Suppose you are going to receive $20,000 per year for twelve years. The appropriate interest rate is 17 percent. (For each step, you must insert rounded answers as directed in the problem. However, when doing the calculations for the next steps, use the complete number (without rounding) for the calculations.)

Requirement 1:

(a) What is the present value of the payments if they are in the form of an ordinary annuity? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Present value $

(b) What is the present value if the payments are an annuity due? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Present value $

Requirement 2:

(a) Suppose you plan to invest the payments for twelve years. What is the future value if the payments are an ordinary annuity? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Future value $

(b) What if the payments are an annuity due? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Future value $

Requirement 3:

(a) Which has the highest present value, the ordinary annuity or annuity due?

Annuity due

Ordinary annuity

(b) Which has the highest future value?

Annuity due

Ordinary annuity

Calculating Perpetuity Values

Curly's Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $13,000 per year forever. The policy costs $202,000. The interest rate that would make this a fair deal is percent.

(Input answer as a percent rounded to 2 decimal places, without the percent sign).

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##### Solution Summary

The solution explains the calculations of annuities, PV of multiple cash flows, annuities due and perpetuity values

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