Question

 

 

Question 5 - TVM Worksheet – compute PV in an Ordinary Annuity [2 points]

The Furros Company purchased equipment providing an annual savings of $10,000 at the end of each year over the next 10 years. Assuming an annual discount rate of 10%, what is the present value of the savings?

 

Question 6 - TVM Worksheet – compute PV in an Annuity Due [2 points]

The Furros Company purchased equipment providing an annual savings of $10,000 at the beginning of each year over the next 10 years. Assuming an annual discount rate of 10%, what is the present value of the savings?

 

Question 7 - Cash Flow Worksheet – compute PV [2 points]

A company pays $7,000 for a new machine, plans a 10% annual return on the investment, and expects the following annual investment gains over the next six years: year 1: $3,000; year 2-5, $5,000 each year; and year 6: $4,000. Compute the net present value (NPV) of this new machine investment.

 

Question 8 - Interest Conversion Worksheet – compute EFF [2 points]

A bank offers a certificate that pays a nominal interest rate of 10% with monthly compounding. What is the annual effective interest rate?

 

Question 9 - TVM Worksheet – compute monthly payments [4 points]

If you finance the purchase of a new desk and chair for $525 at 12% nominal interest rate with monthly compounding for two years, how much is the monthly payment?

 

Answer 1

Ques 5:
Annual Saving 10000
Discount Rate 10%
v =1 -d = 1-0.1 = 0.9

PV of savings = 10000 * (v+ v^2 +v^3 +.........+ v^10)
= 10000 * (0.9 + 0.9^2 +........+0.9^10)
=58618.940391

Ques 6:
Annual Saving 10000
Discount Rate 10%
v =1 -d = 1-0.1 = 0.9

PV of savings = 10000 * (1+v+ v^2 +v^3 +.........+ v^9)
= 10000 * (1+ 0.9 + 0.9^2 +........+0.9^9)
=65132.15599

Ques 7:
PV of Outflow : -7000
PV of Inflows:

3000/ (1+0.1) + 5000 * ( 1/(1.1)^2 + 1/(1.1)^3 +.... +1/(1.1)^5) + 4000/ (1+0.1)^6

=19393.647748

Hence NPV of new machine = 19393.647 - 7000 = $ 12393.6477

Ques 8:
Annual effective rate can be computed as follows:

1+i = (1+ 0.1/12)^12
1+i = 1.10471306734
Hence annual effectiev rate is 10.471306734%

Ques 9:

Let monthly paymnet be M.

Since nominal yearly rate is 12%, monthly rate will be 1%
Hence v= 1/(1.01)

Hence 525 = M * (v +v^2 +v^3 +........+v^24)
525 = M*(21.243387)
M= 24.7135729