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Discount rate to apply to forecasted cash flows

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Reference no: EM131693630

Consider your firm's uneven cash flow analysis presented to you for the various scenarios given below and of course for your calculation: Show all your work

Show your calculations on this sheet or attach an additional page. (c1,2,8)

Year Cash Flow

0 $2,000

1 2,000

2 0

3 1,500

4 2,500

5 4,000

a. What is the present value (Year 0) of the cash flow stream if the opportunity cost rate is 12 percent?

b. What is the future value (Year 5) of the cash flow stream if the cost flows are invested in an account and the opportunity cost rate is 14 percent?

c. What is cash flow today (Year 0), in lieu of the $2,000 cash flow, would be needed to accumulate $20,000 at the end of Year 5? (Assume that the cash flows for Years 1 through 5 remain the same)?

d. Time value analysis involves either discounting or compounding cash flows. Many healthcare financial management decisions such as bond refunding, capital investment, and lease buys involve discounting projected future cash flows. What factors must executives consider when choosing a discount rate to apply to forecasted cash flows?

Reference no: EM131693630

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