Calculate the net present value of a initial investment

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Question (a) How much should you pay for an investment that will give you a return of RM2,000 for every quarter indefinitely if cost of capital is 12% per annum compounded quarterly for the following scenarios:

i. Just after the dividend has been paid

ii. Just before the dividend is due to be paid

Question (b) Mountain Oak Institute would like to set up a scholarship that pays outstanding students RM20,000 in tuition fees. Given the cost of capital is 10% and the institute expect the scholarship to last forever, how much should be set aside today if the scholarship is expected to start in 3 years time?

Question (c) Calculate the Net Present Value of a RM30,000 initial investment that is expected to generate a cash flow of RM13,000 at constant prices, at the end of each year for 3 years. Assume the nominal cost of capital is 15% per annum and inflation rate is 8% per annum. Should you proceed with the investment?

Reference no: EM132506544

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