Problems

1. An NBA player is to receive a $1,000,000 signing bonus today and $2,000,000 one year, two years, and three years from now. Assuming r=0.10 and ignoring tax considerations, would he be better off receiving $6,000,000 today?

2. A project has the following cash flows:

   Open table as spreadsheet

   Now	One year from now	Two years from now	Three years from now
   –$4 million	$4 million	$4 million	–$3 million

   If the company’s cost of capital is 15 percent, should it proceed with the project?

3. Beginning one month from now, a customer will pay their Internet provider $25 per month for the next five years. Assuming all revenue for a year is received at the middle of a year, estimate the NPV of these revenues. Use r=0.15.

4. Beginning one month from now, a customer will pay $25 per month to their Internet provider for the next five years. Assuming all revenue for a year is received at the middle of a year, use the XNPV function to obtain the exact NPV of these revenues. Use r=0.15.

5. Consider the following set of cash flows over a four-year period:

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   Year	1	2	3	4
   	-$600	$550	-$680	$1,000

   Determine the NPV of these cash flows if r=0.15 and cash flows occur at the end of the year.

6. Solve problem 5 assuming cash flows occur at the beginning of each year.

7. Consider the following cash flows:

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   Date	Cash flow
   -12/15/01	–$1,000
   1/11/02	$300
   4/07/03	$600
   7/15/04	$925

   If today is November 1, 2001, and r=0.15, what is the NPV of these cash flows?

8. After earning an MBA, a student will begin working at an $80,000-per-year job on September 1, 2005. She expects to receive a 5 percent raise each year until she retires on September 1, 2035. If the cost of capital is 8 percent a year, determine the total present value of her before-tax earnings.