Corporate Finance

Corporate Finance

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18. Rita Gonzales won the
$41 million lottery. She is to receive $1.5 million a year for the next 19
years plus an additional lump sum payment of $12.5 million after 19 years. The
discount rate is 14%. What is the current value of her winnings?

36. Morgan Jennings, a
geography professor, invests $50,000 in a parcel of land that is expected to
increase in value by 12% per year for the next five years. He will take the
proceeds and provide himself with a 10-year annuity. Assuming a 12% interest
rate, how much will this annuity be?

15. The Horizon Company
will invest $60,000 in a temporary project that will generate the following
cash inflows for the next three years.

Year Cash
Flow

1……………….. $15,000

2………………… $25,000

3………………… $40,000

The firm will also be required to spend
$10,000 to close down the project at the end of the three years. If the cost of
capital is 10%, should the investment be undertaken?

16.Skyline Corp. will invest $130,000 in a project that will
not begin to produce returns until after the third year. From the end of the
third year until the end of the 12^th year (10 periods), the annual
cash flow will be $34,000. If the cost of capital is 12%, should this project
be undertaken?

Find the net present value of Skyline’s
investment at its internal rate of return. Explain your answer.