Purchase Solution

# Net present value of annuities

Not what you're looking for?

1. What is the present value of the following annuities?
a. \$2,500 a year for 10 years discounted back to the present at 7 percent
b. \$70 a year for 3 years discounted back to the present at 3 percent

2. Napa Valley Winery (NVW) is a boutique winery that produces a high-quality, nonalcoholic red wine from organically grown cabernet sauvignon grapes. It sells each bottle for \$30. NVW's chief financial officer, Jackie Cheng, has estimated variable costs to be 70 percent of sales. If NVW's fixed costs are \$360,000, how many bottles of its wine must NVW sell to break even?

3. Fijisawa, Inc., is considering a major expansion of its product line and has estimated the following free cash flows associated with such an expansion. The initial outlay associated with the expansion would be \$1,950,000, and the project would generate free cash flows of \$450,000 per year for six years. The appropriate required rate of return is 9 percent.
a. Calculate the net present value.
b. Calculate the profitability index.
c. Calculate the internal rate of return.
d. Should this project be accepted?

4. Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case:
a. The firm has a cost of goods sold figure of \$480,000 and an average age of inventory of 40 days.
b. The firm has a cost of goods sold figure of \$1,150,000 and an inventory turnover ratio of 5.

5. Salte Corporation is issuing new common stock at a market price of \$27. Dividends last year were \$1.45 and are expected to grow at an annual rate of 6 percent forever. Flotation costs will be 6 percent of market price. What is Salte's cost of equity?

##### Solution Summary

The net present value of annuities are determined. Break-even points are analyzed.

##### Free BrainMass Quizzes

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

##### Basics of corporate finance

These questions will test you on your knowledge of finance.