Holooly Plus Logo
Holooly Plus Logo

Question 2.S2.8: The ABC company expects to receive Rs 1,00,000 for a period ......

The ABC company expects to receive Rs 1,00,000 for a period of 10 years from a new project it has just undertaken. Assuming a 10 per cent rate of interest, how much would be the present value of this annuity?

Step-by-Step
The 'Blue Check Mark' means that this solution was answered by an expert.
Learn more on how do we answer questions.
Report Answer

The appropriate ADF (annuity discount factor) of a 10 year annuity at 10 per cent is to be found from the 10th row (representing time period) against the 10 per cent interest column from Table A-4. This value is 6.145. Multiplying this factor by the annuity amount of Rs1,00,000, we find that the sum of the present value of annuity is Rs 6,14,500.
Let us take an example to clarify how the problems involving varying cash inflows are to be worked out (Example 2.9).

Related Answered Questions

Question: 2.S2.13

Mr X wishes to determine the rate of growth of the following stream of dividends he has received from a company: ...

Verified Answer:

Growth has been experienced for four years. In ord...
Question: 2.S2.14

Suppose a particular debenture pays interest at 8 per cent per annum. The debenture is to be paid after 10 years at a premium of 5 per cent. The face value of the debenture is Rs 1,000. Interest is paid after every six months. What is the current worth of the debenture, assuming the appropriate ...

Verified Answer:

Since the interest is compounded semi-annually ove...
Question: 2.S2.12

A limited company borrows from a commercial bank Rs 10,00,000 at 12 per cent rate of interest to be paid in equal annual end-of-year instalments. What would the size of the instalment be? Assume the repayment period is 5 years. ...

Verified Answer:

The problem relates to loan amortisation. The loan...
Question: 2.S2.11

Company XYZ is establishing a sinking fund to retire Rs 5,00,000, 8 per cent debentures, 10 years from today. The company plans to put a fixed amount into the fund each year for 10 years. The first payment will be made at the end of the current year. The company anticipates that the funds will earn ...

Verified Answer:

The solution to this problem is closely related to...
Question: 2.S2.9

If ABC company expects cash inflows from its investment proposal it has undertaken in time period zero, Rs 2,00,000 and Rs 1,50,000 for the first two years respectively and then expects annuity payment of Rs 1,00,000 for the next eight years, what would be the present value of cash inflows, ...

Verified Answer:

We can solve the problem by applying the long meth...
Question: 6.S2.2

A company issues a new 15 per cent debentures of Rs 1,000 face value to be redeemed after 10 years The debenture is expected to be sold at 5 per cent discount. It will also involve floatation costs of 2.5 per cent of face value. The company’s tax rate is 35 per cent. What would the cost of debt be? ...

Verified Answer:

(i) Trial and Error/Long Approach Cash flow patter...
Question: 2.S2.EQ.1

A person is required to pay four equal annual payments of Rs 4,000 each in his deposit account that pays 10 per cent interest per year. Find out the future value of annuity at the end of 4 years. (CA(PCE)—May, 2007) ...

Verified Answer:

Future Value of annuity =( Rs [late...
Question: 2.S2.7

Mr X wishes to determine the present value of the annuity consisting of cash inflows of Rs 1,000 per year for 5 years. The rate of interest he can earn from his investment is 10 per cent. ...

Verified Answer:

Table 2.8 shows the required calcul...
Question: 2.S2.4

Mr X has been given an opportunity to receive Rs 1,060 one year from now. He knows that he can earn 6 per cent interest on his investments. The question is: what amount will he be prepared to invest for this opportunity? ...

Verified Answer:

To answer this question, we must determine how man...
Question: 2.S2.3

Mr X deposits Rs 2,000 at the end of every year for 5 years in his saving account paying 5 per cent interest compounded annually. He wants to determine how much sum of money he will have at the end of the 5 th year. ...

Verified Answer:

Table 2.6 presents the relevant calculations: The ...