# Present value of future cash flows

XYZ, Inc. has an offer to buy ABC & Sons. XYZ thinks ABC can produce cash flows of $5k, $9k, & $15k over the next three years (respectively). After that, XYZ thinks ABC will be worthless. Using a 14% rate of return, XYZ must make it's purchase decision now. What should XYZ pay today to buy ABC?

Please use Excel (preferably with four columns) to solve.

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XYZ, Inc. has an offer to buy ABC & Sons. XYZ thinks ABC can produce cash flows of $5k, $9k, & $15k over the next three years (respectively). After that, XYZ thinks ABC will be worthless. Using a ...

#### Solution Summary

The expert calculates the present value of future cash flows. Purchase decisions now are examined.

Calculating present/future values of given cash flows

Problem 1

Toadies, Inc., has identified an investment project with the following cash flows.

Year Cash Flow

1 $ 1,400

2 1,520

3 1,605

4 1,655

If the discount rate is 9 percent, what is the future value of the cash flows in year 4?

If the discount rate is 10 percent, what is the future value of the cash flows in year 4?

If the discount rate is 25 percent, what is the future value of the cash flows in year 4?

Problem 2

Wainright Co. has identified an investment project with the following cash flows.

Year Cash Flow

1 $ 780

2 1,050

3 1,310

4 1,425

If the discount rate is 8 percent, what is the present value of these cash flows?

What is the present value at 17 percent?

What is the present value at 25 percent?

Problem 3

The appropriate discount rate for the following cash flows is 7.48 percent per year.

Year Cash Flow

1 $ 2,500

2 0

3 3,940

4 2,190

What is the present value of the cash flows?

Problem 4

You are planning to save for retirement over the next 25 years. To do this, you will invest $880 a month in a stock account and $480 a month in a bond account. The return of the stock account is expected to be 10.8 percent, and the bond account will pay 6.8 percent. When you retire, you will combine your money into an account with a 7.8 percent return.

How much can you withdraw each month from your account assuming a 20-year withdrawal period?

Problem 5

If you deposit $5,600 at the end of each of the next 20 years into an account paying 10.80 percent interest, how much money will you have in the account in 20 years?

How much will you have if you make deposits for 40 years?

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