Our uncle has $300,000 invested at 7.5%, and he now wants to retire. he wants to withdraw $35,000 at the end of each year, starting at the end of this year. he also wants to have $25,000 left to give you when he ceases to withdraw funds from the account. for how many years can he make the $35,000 withdrawals and still have $25,000 left in the end? a. 14.21b. 14.96c. 15.71d. 16.49e. 17.32
35000 × 1.055^30
(original amount) × (decimal percentage)^(years)
35000 × 1.055^30 = 174438.2951
round it up to = $174438.30
Ans. A) NPV= -$9306
Hi, the first thing we need to do is to find the after-tax cost of the firm's capital, and since all capital sources are expressed in terms of after-tax percentage, we just multiply each proportion of capital by its costs, I mean
Long term Debt (7%) * 25% +Preffered Stock(11%)*15% + Common Stock(15%)*60%
The answer to this is 12.40%.
Now, we can find the net present value of this project by using the following formula.
Since the expected cash flow takes place 5 times form year 1 to 5, and is equal to $95,450, "n" is equals to 5 and "CashFlow" is equal to $95,450.
Therefore, the NPV of this project is -$9,306, which is answer A)
Best of luck.
Closest to $(54,390)
With a financial calculator and cashflow "CF" function, input the following to solve for NPV;
Initial investment in machine ; CF0 = -350,000
Yr 1 cashflow; C01 = 82,000
Yr 2 cashflow; C02 = 82,000
Yr 3 cashflow; C03 = 82,000
Yr 4 cashflow; C04 = 82,000
Yr 5 cashflow; C05 = 82,000
and enter interest rate ; I/Y = 12%
then compute; CPT NPV = -54,408.35
Therefore, net present value of the proposed project is closest to $(54,390)