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# PV of cash flows

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A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of \$26,000, an operating cost of \$2000, and a salvage value of \$12,000 after 3 years. A Ford model will have a first cost of \$29,000, an operating cost of \$1200, and a \$15,000 resale value after 3 years. At an interest rate of 15% per year, which model should the consulting firm buy? Conduct an annua worth analysis.

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See the attached file. Thanks

"A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of \$26,000, an operating cost of \$2000, and a salvage value of \$12,000 after 3 years. A Ford model will have a first cost of \$29,000, an operating cost ...

#### Solution Summary

PV of cash flows is determined.

\$2.19

## Time value of money problems

Time value of money exercises

1. What is the present value of the following series of cash flows discounted at 12 percent: \$40,000 now; \$50,000 at the end of the first year; \$0 at the end of year the second year; \$60,000 at the end of the third year; and \$70,000 at the end of the fourth year?

2. Assume an income-producing property is priced at \$5,000 and has the following income stream (year 1, \$1,000; year 2, -\$2,000; year 3, \$3,000; and year 4, \$3,000). Would an investor with a required rate of return of 15 percent be wise to invest at the current price?

3. Calculate the present value of the income stream given below assuming discount rates of 8 percent and 20 percent.

Year Income
1 \$3,000
2 \$4,000
3 \$6,000
4 \$1,000

4. Calculate the IRR and NPV for the following investment opportunities. Assume a 16 percent discount rate for the NPV calculations:

Year Project 1 Cash Flow Project 2 Cash Flow
0 -\$10,000 -\$10,000
1 1,000 1,000
2 2,000 12,000
3 12,000 1,800

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