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# NPV - Daily Payments & Mid Year Discounting

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1. Batesville Manufacturing is considering a capital investment that will provide cash flows of \$1,000 a year for 20 years. The payments are spread across the year in daily payments rather than being made at year-end. The effective annual required return is 12%. What is the present value of these benefits: What would be the present value of the benefits if all cash flows occurred at midyear?

#### Solution Preview

Batesville Manufacturing.

Using Excel PV function, we can compute present value of investment. As the payments are spread daily, we will use ...

#### Solution Summary

The solution provides can example to compute mid year discounting for NPV calculation as well as where payments are spread daily.

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## Finance True/False

True or False The major role played by earnings announcements in the valuation of a business (or project) is that earnings announcements are used to revise or refine your forecast of future cash flows.
True or False The difference between the yield to maturity and the yield to call is that yield to maturity is the presumed yield an investor will earn if they hold a bond until it is called. Yield to call is the presumed yield an investor will earn if they buy the bond at the current price and assume that it will be held to maturity.
True or False The reinvestment rate assumption is important to interpreting the IRR percentage.
True or False Ordinary annuities are common with leases and premiums paid to insurance companies because these cash flows usually occur at the beginning of the period.
True or False When companies have daily cash flows that occur over the year rather than at any single point in time, the analyst should use midyear cash flow discounting to approximate the daily cash flows.
True or False Assuming the same risk, the present value of \$100 per year forever is greater than the present value of \$100 the first year and growing a 4% forever thereafter.
True or False Internal rate of return is the preferred method to adjust for unequal lives.
True or False The net present value measures an investment's total contribution to shareholder wealth while the profitability index measures wealth creation per dollar invested.
True or False The investment with the highest equivalent annuity will have the highest net present value of total cash flows if all competing investments are repeated to infinity or to a comparable time horizon at which the lives of all competing investments end.
True or False XYZ Company is comparing a 10 year project with a 20 year project. When calculating an equivalent annuity for the project with a 10 year life, XYZ should calculate the present value of the project and divide this NPV by the annuity factor (PVIF) for 20 years.
True or False Failure to recognize potential increases in indirect costs will lead to an under-estimation of the projects profitability.
True or False All single amount problems involve finding either-- the present value, the future value, the rate of return, or the number of periods.
True or False Annuity dues are constant and consistent payments that occur at the beginning of the investment period.
True or False Businesses in highly competitive markets typically have a positive accounting profit and but not a positive economic profit.
True or False Competitive advantage is the elimination of some of the conditions for perfect competition so that economic profit is possible.
True or False Capital budgeting much like strategic planning begins with the establishing of goals.
True or False To continue delivering their missions, many non-profit organizations (while working for social causes) seek to maintain or increase wealth as if they were profit seeking businesses.
True or False It is uncommon for different stages of the value chain (from the purchase of raw materials, producing the product, to selling the product) to be performed in different part of the world.

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