Discounted Cash Flows and Valuation Assignment Solution

This assignment solution addresses key concepts in corporate finance, specifically focusing on discounted cash flows and valuation. The solution includes detailed calculations for future value, present value, and the cost of equipment, along with the present value of an annuity and the annual savings required to reach a future financial goal. The assignment demonstrates the application of these financial principles through the use of formulas and calculations to determine the value of investments and financial planning scenarios. The solution also references relevant academic sources to support the analysis.

Running Head: FINANCE 1
Finance
(Student Name)

FINANCE 2
Table of Contents
6.1....................................................................................................................................................3
6.4....................................................................................................................................................3
6.7....................................................................................................................................................3
6.12..................................................................................................................................................4
References........................................................................................................................................5

FINANCE 3
6.1
At the end of year 4, the future value of Konerko Company’s cash flow will be
$74472.48 at the condition when the company will adopt the discount rate of 8%. It is sufficient
future value cash flow that helps the company to grow in the competitive market in an effective
as well as in an efficient manner (Roy, Rudra & Prasad,, 2017).
Year Cash Flow
Number of Yrs
interest earned
PV factor
@ 8% Future value
1 13227 3 1.260 16662.21
2 15611 2 1.166 18208.67
3 18970 1 1.080 20487.60
4 19114 0 1.000 19114.00
Cash Flow Future Value at the end of year 4 74472.48
6.4
The cost of equipment will be approximately $38652 if Saul Cervantes purchases such
equipment in the recent year. It occurs when Saul Cervantes will adopt 10.875% as a discount
rate. Therefore, the overall cost of the equipment fluctuates in the case of fluctuation in the
discount rate.
Year Cash Flow Discount Rate @ 10.875 Cost at

FINANCE 4
individual level
1 10450 1.1088 9425.028185
2 8500 1.2293 6914.354785
3 9675 1.3630 7098.230126
4 12500 1.5112 8271.332543
5 11635 1.6756 6943.816307
Cost of Equipment 38652.76195
6.7
In order to analyze the value of investment, the present value of the project will be
$5652.06 at the condition when the required rate of return is 8%. The following calculation is
explained in the below table as they are:
Annual
Payment 750
Years 12
Rate 8%

FINANCE 5
Present Value
of Annuity = A/r*(1-(1/(1+r))^n)
Therefore, (750/0.08)*(1-(1/(1+0.08)^12)
Value of the
Investment = 5652.06
6.12
In such situation Kevin wants to save certain amount so that he can able to make trip in
Australia after three years. He started saving its amount at the end of each year. Therefore, the
saving of first year is accumulated return or interest for two years. In the second years, the
savings of Kevin will be added with one year return. The last instalment will not earn any return.
It is assumed that it will be withdrawal immediately after its deposits (Abor, 2017). He requires
$5000 and the average annual return is assumed as 10.3%. The annual savings is calculated as:
Future Value
Required= $5000
Term 3 Years
Annual Return
rate 10.30%
Future Value Required = Future value of annual deposits

FINANCE 6
therefore,
$5000= Annual Deposit * [(1+r)^n-1]/r
$5000=
Annaul Deposit *
[(1+10.3%)^3-1]/10.3%
$5000=
Annual Deposit
* 3.319609
Annual
Deposit=
$5000/3.31960
9
Saving
Amount Every
year = 1506.201483

FINANCE 7
References
Abor, J. Y. (2017). Evaluating Capital Investment Decisions: Capital Budgeting.
In Entrepreneurial Finance for MSMEs (pp. 293-320). New York: Palgrave Macmillan,
Roy, D., Rudra, D., & Prasad, P. (2017). Capital Structure and Capital Budgeting: An Empirical
and Analytical Study of the Relationship. Research Bulletin, 42(4), 50-60.