## Description

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**

**1â€¦â€¦â€¦â€¦â€¦â€¦.. $15,000**

**2â€¦â€¦â€¦â€¦â€¦â€¦… $25,000**

**3â€¦â€¦â€¦â€¦â€¦â€¦â€¦ $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.

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