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

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 12th 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.


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