chapter 9 3

9.1  Find the following values for a lump sum assuming annual compounding:
  a. The future value of $500 invested at 8 percent for one year
  b. The future value of $500 invested at 8 percent for   ve years
 c.   The present value of $500 to be received in one year when the op-
portunity cost rate is 8 percent
 d.  The present value of $500 to be received in five years when the op-
portunity cost rate is 8 percent
  9.2  Repeat Problem 9.1 above, but assume the following compounding
conditions:

  9.7 Consider another uneven cash   ow stream:
 Year Cash Flow
 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 op-
portunity 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?
 c.  What cash flow today (Year 0), in lieu of the $2,000 cash flow, would
be needed to accumulate $20,000 at the end of Year 5? (Assume that
the cash flows for Years 1 through 5 remain the same.)
 d.  Time value analysis involves either discounting or compounding
cash flows. Many healthcare financial management decisions—such
as bond refunding, capital investment, and lease versus buy—involvediscounting projected future cash flows. What factors must execu-
tives consider when choosing a discount rate to apply to forecasted
cash flows?9.11 Consider the following investment cash flows:
 Year Cash Flow
 0 ($1,000)
 1     250
 2     400
 3     500
  4      600
  5      600
 a.  What is the return expected on this investment measured in dollar
terms if the opportunity cost rate is 10 percent?
 b. Provide an explanation, in economic terms, of your answer.
 c. What is the return on this investment measured in percentage terms?
 d. Should this investment be made? Explain your answer.a. Semiannual
 b. Quarterly

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