Consider the following information. If you apply the NPV criterion, which investment will you choose? Suppose that whichever project you choose, if any, you will require a 15% return on your investment.
| Year | CF of Project A | CF of Project B |
| 0 | -$350,000 | -$50,000 |
| 1 | 45,000 | 24,000 |
| 2 | 65,000 | 22,000 |
| 3 | 65,000 | 19,500 |
| 4 | 440,000 | 14,600 |
Imprudential, Inc., has an unfunded pension liability of $800 million that must be paid in 24 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.5 percent, what is the present value of this liability?
a. $172,951,955
b. $162,363,060
c. $180,011,219
d. $197,628,254
e. $176,481,587
Which of the following amounts is closest to the present value of payments of pounds 60,000 at the end of each of the next three years if the appropriate interest rate is 6%?
a. pounds 54,546
b. pounds 59,940
c. pounds 160,380
d. pounds 163,632
e. pounds 180,000
You will receive $5,500 three years from now. The discount rate is 13 percent.
a. What is the value of your investment two years from now?
b. What is the value of your investment one year from now?
c. What is the value of your investment today?
d. Find the present value of $5,300 received three years from now at 13 percent interest.
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