You Estimate That the Little Drive-Through Coffee Kiosk You Own

question 36

Multiple Choice

You estimate that the little drive-through coffee kiosk you own will generate ordinary annuity after-tax cash flows of $150,000 per year for the next ten years.If you discount these cash flows at an annual rate of 14%,what is the present value of your expected cash flows?

• A)$782,417.35
• B)$891,955.78
• C)$1,500,000.00
• D)$2,900,594.27

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Definitions:

Semiannually

Occurring twice a year; every six months.

Zero-coupon Bond

A type of bond that does not pay interest during its life; it is sold at a discount from its face value and the return is realized when the bond matures.

Deep Discount

A situation where a bond or other investment is sold significantly below its par or face value.

Yield To Maturity

The total return expected on a bond if it is held until its maturity date, including all interest payments and capital gains or losses.