Chapter 06 Discounted Cash Flow Valuation
61. Will has been purchasing $25,000 worth of New Tek
stock annually for the past 11 years. His holdings are now worth $598,100. What
is his annual rate of return on this stock?
A. 14.13 percent
B. 14.24 percent
C. 14.29 percent
D. 14.37 percent
E. 14.68 percent
62. Your father helped you start saving $20 a month
beginning on your 5^{th} birthday. He always made you deposit the money
into your savings account on the first day of each month just to "start
the month out right." Today completes your 17^{th} year of saving
and you now have $6,528.91 in this account. What is the rate of return on your
savings?
A. 5.15 percent
B. 5.30 percent
C. 5.47 percent
D. 5.98 percent
E. 6.12 percent
63. Today, you turn 23. Your birthday wish is that you
will be a millionaire by your 40^{th} birthday. In an attempt to reach
this goal, you decide to save $50 a day, every day until you turn 40. You open
an investment account and deposit your first $50 today. What rate of return
must you earn to achieve your goal?
A. 10.67 percent
B. 11.85 percent
C. 12.90 percent
D. 13.06 percent
E. 13.54 percent
64. You just settled an insurance claim. The
settlement calls for increasing payments over a 10year period. The first payment
will be paid one year from now in the amount of $10,000. The following payments
will increase by 4.5 percent annually. What is the value of this settlement to
you today if you can earn 8 percent on your investments?
A. $76,408.28
B. $80,192.76
C. $82,023.05
D. $84,141.14
E. $85,008.16
65. Your grandfather left you an inheritance that will
provide an annual income for the next 10 years. You will receive the first
payment one year from now in the amount of $4,000. Every year after that, the
payment amount will increase by 6 percent. What is your inheritance worth to
you today if you can earn 9.5 percent on your investments?
A. $31,699.15
B. $36,666.67
C. $41,121.21
D. $43,464.12
E. $46,908.17
66. You just won a national sweepstakes! For your
prize, you opted to receive neverending payments. The first payment will be
$12,500 and will be paid one year from today. Every year thereafter, the
payments will increase by 3.5 percent annually. What is the present value of
your prize at a discount rate of 8 percent?
A. $166,666.67
B. $248,409.19
C. $277,777.78
D. $291,006.12
E. $300,000.00
67. A wealthy benefactor just donated some money to
the local college. This gift was established to provide scholarships for worthy
students. The first scholarships will be granted one year from now for a total
of $35,000. Annually thereafter, the scholarship amount will be increased by
5.5 percent to help offset the effects of inflation. The scholarship fund will
last indefinitely. What is the value of this gift today at a discount rate of 8
percent?
A. $437,500
B. $750,000
C. $1,200,000
D. $1,400,000
E. $1,450,750
68. Southern Tours is considering acquiring Holiday
Vacations. Management believes Holiday Vacations can generate cash flows of
$187,000, $220,000, and $245,000 over the next three years, respectively. After
that time, they feel the business will be worthless. Southern Tours has
determined that a 13.5 percent rate of return is applicable to this potential
acquisition. What is Southern Tours willing to pay today to acquire Holiday
Vacations?
A. $503,098
B. $538,615
C. $545,920
D. $601,226
E. $638,407
69. You are considering two savings options. Both
options offer a 7.4 percent rate of return. The first option is to save $900,
$2,100, and $3,000 at the end of each year for the next three years,
respectively. The other option is to save one lump sum amount today. If you
want to have the same balance in your savings account at the end of the three
years, regardless of the savings method you select, how much do you need to
save today if you select the lump sum option?
A. $4,410
B. $4,530
C. $4,600
D. $5,080
E. $5,260
70. Your parents have made you two offers. The first
offer includes annual gifts of $10,000, $11,000, and $12,000 at the end of each
of the next three years, respectively. The other offer is the payment of one
lump sum amount today. You are trying to decide which offer to accept given the
fact that your discount rate is 8 percent. What is the minimum amount that you
will accept today if you are to select the lump sum offer?
A. $28,216
B. $29,407
C. $29,367
D. $30,439
E. $30,691

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