# The Net Present Value of a Stream of Cash Flow

The Net Present Value of a Stream of Cash Flow

11. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now.

a) What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity?

b) What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it now?

16. What is the present value of $1000 paid at the end of each of the next 100 years if the interest rate is 7% per year?

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The Net Present Value of a Stream of Cash Flow

11. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now.

a) What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity?

NPV is calculated by finding the present value of each cash flow, including both cash inflows and ...

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Cash flows, present value, cash flow streams, investments

1) Seaborn Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value 18 percent? At 24 percent?

Year Cash Flow

1 $950

2 $1040

3 $1130

4 $1075

2.) Investment X offers to pay you $6,000 per year for nine years, whereas Investment Y offers to pay you $8,000 per year for six years. Which of these cash flows streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?

3.) An investment offers $5,300 per year for 15 years, with the first payment occurring one year from now. If the required return is 7 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75? Forever?

4.) If you put up $34,000 today in exchange for a 7.65 percent, 15-year annuity, what will the annual cash flow be?

5.) Your company will generate $73,000 in annual revenue each year for the next eight years from a new information database. If the appropriate interest rate is 8.5 percent, what is the percent value of the savings?

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