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Calculating Present Values and Multiple Cash Flows

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1. Calculating Present Values: For each of the following compute the present value. Answer in Excel.

Present Value____Years____Interest Rate____Future Value
?_______________6__________7%_________$13,827
?_______________9__________15__________$43,852
?_______________19_________11__________$725,380
?_______________23_________18__________$590,710

2. Calculating Interest Rates: Solve for the unknown interest rate in each of the following: Answer in Excel
Present Value____Years____Interest Rate____Future Value
$__ 242___________4__________?_________$_____307
$__ 410___________8__________?_______________896
$51,700__________16__________?__________$162,181
$18,750__________27__________?__________$483,500

3. Calculating the Number of Periods: Solve for the unknown number of years in each of the following: Answer in Excel
Present Value____Years____Interest Rate____Future Value
$___625__________?___________9%_______$__1,284
$___810__________?__________11_________$__4,341
$18,400___________?_________17__________$402,662
$21,500___________?__________8__________$173,439

4. Present Value and Multiple Cash Flows: Farley Company has identified an investment project with the following cash flows. Answer in Excel
Year________Cash Flow
__1_________$960
__2_________$840
__3_________ $935
__4________$1,350

a. If the discount rate is 10 percent, what is the present value of these cash flows?
b. What is the present value at 18 present?
c. At 24 percent?

5. Present Value and Multiple Cash Flows: Investment X offers to pay you $4,500 per year for nine years, whereas Investment Y offers to pay you $7,000 per year for five years.
a. Which of these cash flow streams has the higher present value if the discount rate 5 percent? Explain.
b. If the discount rate is 22 percent?

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Solution Summary

Your tutorial is in excel, attached using the PV, RATE, NPER, NPV functions.

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Continuous compounding, FV, multiple cash flows, stock valuation

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a. 5 years at a stated annual interest rate of 12 percent.
b. 3 years at a stated annual interest rate of 10 percent.
c. 10 years at a stated annual interest rate of 5 percent.
d. 8 years at a stated annual interest rate of 7 percent.

67. Future Value and Multiple Cash Flows An insurance company is offering a new policy to its customers. Typically the policy is bought by a parent or grandparent for a child at the child's birth. The details of the policy are as follows: The purchaser (say, the parent) makes the following six payments to the insurance company:
First birthday: $750
Second birthday: $750
Third birthday: $850
Fourth birthday: $850
Fifth birthday: $950
Sixth birthday: $950
After the child's sixth birthday, no more payments are made. When the child reaches age 65, he or she receives $250,000. If the relevant interest rate is 11 percent for the first six years and 7 percent for all subsequent years, is the policy worth buying?
Chapter 5
7. Stock Valuation Suppose you know that a company's stock currently sells for $70 per share and the required return on the stock is 12 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it's the company's policy to always maintain a constant growth rate in its dividends, what is the current dividend per share?
(Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 5.11).
1. Discuss the time value of money analysis, the process of compounding, discounting, and amortization of cash flows; and various applications of the concept of time value of money on financial management analysis and corporate finance.
2. Discuss bond valuation, stock valuation, the constant growth model and the dividend growth model.

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