Topic 5: The Time Value of Money
Eva’s opportunity cost of capital is 12% compounded monthly. She invested US$200 at the beginning of the year and she is expected to receive the stream of cash flows depicted below (where t denotes time in months). Which of the following is closest to the net present value (NPV) of this project?
Alfred would like to borrow some US$200 and he has two options. Either to borrow from a bank at 5.60% (compounded monthly) or to borrow from a crowdfunding platform that requires him to repay the stream of cash flows depicted below, where t is time in years. What is the cheapest option for Alfred?
Borrowing from the bank
There is no difference
Borrowing from the crowdfunding platform
Rob is the CEO of Alfa LLP. Alfa LLP is a major European retailer. Company’s weighted cost of capital is 6.20%. Rob decides to invest from his own portfolio in a mining company which provides a Return on Investment of 6.75%, should he undertake the investment?
Asset 1 provides a perpetual payment of US$10 starting 5 years from now. The first payment will occur at the end of 5’th year. Asset 2 provides a perpetual payment of US$10 starting from the end of the 101’th year. What will be the approximate price of an asset that provides payments of US$10 from the end of the 5’th year until the year 100 if the required rate of return on all investments mentioned above is 5.00%?
Karlis took a loan of US$100,000 on which he pays an interest of 5% p.a. on a monthly basis. The loan is supposed to be paid off in 10 years and the first payment takes place 1 month after he borrows the funds. After 3 years the interest rate increases to 7% per annum and the loan is renegotiated at the new level of interest rates. What will be the approximate principal payment during the 37’th month?
An investor has 2 streams of cash flows, let’s call them CF1 and CF2. It is known that CF1 has an IRR of 15%, while CF2 has an IRR of 20%, what will be the IRR if both these cash flows are combined?
Any value in the range between 15% and 20%
Cannot be estimated
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