# NPV calculations, IRR, yield to maturity

See attached file for proper format.

Question 1. Jay Coleman just graduated. He plans to work for five years and then leave for the Australian "Outback" country. He figures that he can save $3,500 a year for the first three years and $5,000 a year for the next two years. These savings will start one year from now. In addition, his family gave him a $2,500 graduation gift. If he puts the gift, and the future savings when they start, into an account that pays 7.75% compounded annually, what will his financial "stake" be when he leaves for Australia five years from now? Round off to the nearest $1.

Question 2. Find the present vale of the following stream of cash flows assuming that the firm's cost is 14% and that these amounts are received at the end of each year.

Year Amount

1 - 5 $20,000/yr

6 - 10 $35,000/yr

Question 3.

Table 1

Jones Company Financial Information

December 2008 December 2009

Net income $1,500 $3,000

Accounts receivable 750 750

Accumulated depreciation 1,125 1,500

Common stock 4,500 5,250

Paid-in capital 7,500 8,250

Retained earnings 1,500 2,250

Accounts payable 750 750

Based on the information in Table 1, calculate the after tax cash flow from operations for 2009 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable)

Question 4.

Below are the expected after-tax cash flows for Projects Y and Z. Both projects have an initial cash outlay of $20,000 and a required rate of return of 17%.

Project Y Project Z

Year 1 $12,000 $10,000

Year 2 $8,000 $10,000

Year 3 $6,000 0

Year 4 $2,000 0

Year 5 $2,000 0

Project Y's IRR is:

Question 5.

Wright's Warehouse has the following projections for Year 1 of a capital budgeting project.

Year 1 Incremental Projections:

Sales $200,000

Variable Costs $120,000

Fixed Costs $40,000

Depreciation Expense $20,000

Tax Rate 40%

Calculate the operating cash flow for Year 1.

Questions 6.

Lambda Co. has bonds outstanding that mature in 10 years. The bonds have $1,000 par value, pay interest annually at a rate of 9%, and have a current selling price of $1,125. The yield to maturity on the bonds is

7.20%.

14.40%.

10.12%.

9%.

#### Solution Summary

Jay Coleman graduation case

Jones company financials

PV calculation

Project Y IRR

Lambda Company yield to maturity