Present Value Exercises And Cash Flows - Corporate Finance Assignment Help

Assignment Task -

Instructions:. You should submit an electronic copy of your excel solution on Canvas. Preparation  of problem sets should be done individually, but you are allowed to discuss the related concepts  with your learning team. Your solution should be formatted and laid out so that it is easy to read  and clearly shows your work, the logic behind your answers, and any assumptions you made in  the analysis.

Questions :-

1. You own a gas pipeline that requires no maintenance and will produce $2 million of revenue  next year. Unfortunately, after the first year the volume of gas (and thus the revenue) is  expected to decline by 4.0% per year. 

a. If the discount rate is 11.0% and the pipeline lasts forever, what is it worth today?

b. If the pipeline is to be abandoned at the end of 20 years, what is it worth today?

2. Your firm just received a loan from the bank and you want to see if it was good investment (assume the interest payouts happen annually). 

a. Suppose you borrowed $100 for a year at a competitive interest rate of 6%. What is the  present value of total payments (interests and principal) to the bank? To compute this  present value, use the discount rate r = 6% (as this is the competitive market rate, you  could receive yourself if you wish). 

b. Suppose instead you borrowed $200 for two years, at 7%. What is the present value of  interests and principal payments? (use r = 7% this time, as this is competitive rate). c. What if you borrowed $350 for three years at 10%? (use r = 10%) 

d. What is the pattern? In a competitive market, does raising interest-bearing debt on a  firm balance sheet increase or decrease the present value of its cash flow?

3. A widget factory costs $800,000 and will produce net cash flow starting next year of  $150,000 per year for 10 years after which it will turn to dust. If the discount rate is 12%, what  is the NPV? What is the IRR? 

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