Would you rather receive a $1,000,000 today or $100,000 each year for the next 10 years? Why?
Question:
Would you rather receive a $1,000,000 today or $100,000 each year for the next 10 years? Why?
7) Assuming you can invest any money received at 8%. Would you rather have $700,000 today or $100,000 each year for the next 10 years? Why?
8) I plan to buy a lottery ticket for Wednesday's Powerball jackpot which is advertised as $240,000,000. The prize would be paid out as a twenty year annuity of $12,000,000 a year for twenty years. So is the prize really worth $240,000,000 today (ignore taxes)?
9) How much do I need to invest today at 6% so that I have $80,000 for my son’s education in 8 years?
10) A company is deciding whether or not to buy a machine. The machine costs $45,000 and is expected to generate net cash flow for the business as below:
Year 1 $12,000
Year 2 $18,000
Year 3 $26,000 The company’s applicable interest rate is 12% on the machine That is, the company will only invest in the machine if the cash flow it receives generates a return of 12% or more. (In practice this rate is often based on the company’s cost of capital). Should the company buy the machine? Why or why not?
11) Assume you could buy an investment that would pay you $6,000 a year for 10 years and then pays you $100,000 at the end of the 10 years. How much would you pay for the investment if you require a 6% rate of return for an investment with this risk profile?
12) Assume the same investment as Question 11 but, due to an increased risk assessment, you require an 8% return. What would you be willing to pay for the investment?
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn