What is the present value of the payment stream

Assignment Help Financial Management

Reference no: EM131985509

A small manufacturing company needs to invest in new equipment. It determines that it can afford to pay back 5,000 in one year.

After that it can pay back 5, 100 and so on. Each year the size of the repayment grows by 2%. The repayments will last for 20 years.

a. If the interest rate is 5% what is the present value of the payment stream?

b. What happens to the present value if the manufacturing company extended its repayment to 25 years?

c. The manufacturing company realizes that, instead of starting repayment of 5,000 in one year it can only start three years later (so in four years from today).

It will still make 20 payments total and they will grow at the same rate. What is the present value of this payment stream today?

Reference no: EM131985509

Questions Cloud

Find the value of the divisor : Divisor Definition Problem - Find the value of the divisor 135 ÷ m = 27. Find the value of the divisor, here 207 ÷ m = 3

Explanation for a downward-sloping demand curve : How is your explanation different from the explanation for a downward-sloping demand curve for an individual product?

What about the worst- case scenario : What values should the company use for the four variables given here when it performs its best-case scenario analysis? What about the worst- case scenario?

Labour underutilisation rate : If over two periods, the unemployment rate had reduced from 6.5 per cent to 5.5 per cent and the measured labour underutilisation rate had reduced

What is the present value of the payment stream : A small manufacturing company needs to invest in new equipment. It determines that it can afford to pay back 5,000 in one year.

Which one of the five common financial statements is best : Which one of the five common financial statements is best illustrated in the article? Provide facts to support your answer?

What are the differences in each sisters voice : What are the differences in each sister's voice? Is Alvarez successful in making each sister distinct? How does she achieve this effect?

Describe the difference between an inner join : Describe the difference between an INNER JOIN, a RIGHT JOIN, and a LEFT JOIN. Provide a business example where you would want to use each type of join.

Realized return is known as holding period yield : What is the HPY on your investment? What rate of return do you expect to earn on your investment?

User Account

All Pages