Please show working
Given the following set of cash flows:
Period
Cash Flows
1
$45,000
2
$40,000
3
$35,000
4
$30,000
5
$25,000
a. If your required rate of return is 7% per year, what is the present value of the above cash flows? Future value?
b. Now, suppose that you are offered another investment that is identical, except that the cash flows are reversed (i.e., cash flow 1 is 25,000, cash flow 2 is 30,000, etc.). Is this worth more, or less, than the original investment? Why?
c. If you paid $130,000 for the original investment, what average annual rate of return would you earn? What return would you earn on the reversed cash flows?
d. Still assuming that your required return is 7%, would you be willing to purchase either of these investments? Explain why, or why not.
Please show working
Given the following set of cash flows:
| Period | Cash Flows |
| 1 | $45,000 |
| 2 | $40,000 |
| 3 | $35,000 |
| 4 | $30,000 |
| 5 | $25,000 |
a. If your required rate of return is 7% per year, what is the present value of the above cash flows? Future value?
b. Now, suppose that you are offered another investment that is identical, except that the cash flows are reversed (i.e., cash flow 1 is 25,000, cash flow 2 is 30,000, etc.). Is this worth more, or less, than the original investment? Why?
c. If you paid $130,000 for the original investment, what average annual rate of return would you earn? What return would you earn on the reversed cash flows?
d. Still assuming that your required return is 7%, would you be willing to purchase either of these investments? Explain why, or why not.
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| Given the following set of cash flows: | ||||||||||||||
| Period | Cash Flow | |||||||||||||
| 1 | $ 40,000 | |||||||||||||
| 2 | $ 35,000 | |||||||||||||
| 3 | $ 30,000 | |||||||||||||
| 4 | $ 25,000 | |||||||||||||
| 5 | $ 20,000 | |||||||||||||
| 6 | $ 15,000 | |||||||||||||
| 7 | $ 10,000 | |||||||||||||
| 8 | $ 5,000 | |||||||||||||
| 1. If your required rate of return is 8% per year,what is the present value of the above cash flows? | ||||||||||||||
| 2. If your required rate of return is 8% per year,what is the future value of the above cash flows? | ||||||||||||||
| 3. Suppost that you are offered another investmentthat is identical, except the cash flows are reveresed. Compute thePV and FV, is this investment worth more or less than #1 and#2? | ||||||||||||||
| 4. If you paid $150,000 for the originalinvestment, what average annual rate of return would you earn? Whatreturn would you earn on the reversed cash flows? | ||||||||||||||
