 # Mmha 6160 week 6 assignment 9.1 a. what is an opportunity cost

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MMHA 6160 Week 6 Assignment

9.1  a. What is an opportunity cost rate?

b. How is this rate used in time value analysis?

c. Is this rate a single number that is used in all situations?

9.4  Find the following values assuming a regular, or ordinary, annuity:

a. Ther present value of \$400 per year for ten years at 10 percent

b. The future value of \$400 per year for ten years at 10 percent

c. The present value of \$200 per year for five years at 5 percent

d. The future value of \$200 per year for five years at 5 percent

9.6  Consider the following uneven cash flow stream:

Year  CashFlow:

0                                                                              \$         0

1                                                                                      250

2                                                                                      400

3                                                                                      500

4                                                                                      600

5                                                                                      600

a.       What is the present (Year 0) value if the opportunity cost (discount) rate is 10 percent?

b.      Add an outflow (or cost) of \$1,000 at Year 0. What is the present value (or net present value of the stream?

9.7  Consider the following uneven cash flow stream:

YearCashFlow:

0                                                                                                                          \$2,000

1                                                                                                                            2,000

2                                                                                                                                    0

3                                                                                                                            1,500

4                                                                                                                            2,500

5                                                                                                                            4,000

a.       What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10 percent?

b.      What is the future (Year 5) value of the cash flow stream if the cash flows are invested in an account that pays 10 percent annually?

9.9  Assume that you just won \$35 million in the Florida lottery, and hence the state will pay you 20 annual payments of \$1.75 million each beginning immediately. If the rate of return on securities of similar risks to the lottery earnings (e.g., the rate on 20 year U.S. Treasury bonds) is 6 percent, what is the present value of your winnings?

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