Present Value of Annity
PV
FV
Rate
Period
Payment
Annuities have NO FV
$48.271,94
0
0,07
15
5300
Problem 4-13 Calculating Annuity Present Value
An investment offers $6,700 per year for 15 years, with the first payment occurring one year from now.
If the required return is 6 percent, what is the value of the investment? (Do not round intermediate calculations a
Week 2 Q6
FV
Period
Payment
Rate
Stock
$83.110,13 FV
25
-820
0,102
Bond
$23.702,69
25
-420
0,062
nt occurring one year from now.
(Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Savings
TOTAL
Payment per month
$106.812,81
240
($840,98995)
0,006
$445,05340
Tristan
Principal
Rate
Period
Tristan
Jose
3500
0,07
Principal
Rate
Period
8 years
1
3.745,00000000
2
4.007,15000000
3
4.287,65050000
4
4.587,78603500
Calculating Annuity payments
FV
PV
Payment
Rate
Period
Acct 1-Stock
$83.110,13 FV
PV
-820 Payment
0,102 Rate
25 Period
Acct 2-Bond
$23.702,69 FV
PV
-420 Payment
0,062 Rate
25 Period
Week2 Q.11
Year
AZM
Mini-SUV
0
1
2
3
Rate
Payback Period for each cash flow
NPV for each cash flow
IRR for each cash flow
NPV
IRR
(500.000,00000)
330.000,00000
200.000,00000
160.000,00000
0,12000
$67.966,47
20,94757%
Week 2 Q.12
Year
Proj. A
Proj. B
0 (210.000,0000000) (375.000,0000000)
1
135.000,0000000
230.000,0000000
2
135.000,0000000
230.000,0000000
Rate
0,0600000
0,0600000
NPV
37.508,00997
46.680,31328
Calulate Profitibility Index=PV/initial investment. If the profitability index is greater than 1, th
PI
$1,18
1,12
Jose
3500
8
5
4.908,93105745
6
5.252,55623147
7
5.620,23516767
8
6.013,65162941
6031,65
316,4563
9,041607
For #6 (4-23),
Payment
$106.812,81
First figure out the retirement account values to sum.
For Future Values
formulas in Excel,
use something like
=FV((interest/ann
ual periods),total
investment
periods,outflow
payment, 0
present value, 0)
($10.239,63341)
0,072
20
Do that for each account and add the total Future Values.
Then consider that
you need to find
out the monthly
payout (over 30
years), and the
start of that
payout entails the
sum from step #3
is now a present
value.
You would use a formula like, =PMT((interest/annual periods
The returned figure may be negative because it's a payout.
AZF
Full-SUV
–$
(850.000,0000000)
360.000,0000000
440.000,0000000
300.000,0000000
35.727,95
14,49105%
Proj. C
(210.000,0000000)
(585.000,0000000)
145.000,0000000
115.000,0000000
0,0600000
29.142,04343
the profitability index is greater than 1, the project is accepted, and if it is less than 1, the project is rejected.
1,14
=PMT((interest/annual periods),total investment periods, Summed Present Value, 0 future value, 0).
When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then u
Payback
B
Period = A
C
Pay back period =A+(b/C)
+
In the above formula,
A is the last period with a negative cumulative cash flow;
B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A
Week 2 Q. 11
Year
0
1
2
3
AZM Mini SUV
Cum. Cas Flows
(500.000,0000000)
(500.000,00000)
330.000,0000000
(170.000,0000000)
200.000,0000000
30.000,0000000
160.000,0000000
190.000,0000000
Payback period
Week 2 Q 7.
Proj A
0
1
2
3
Rate
NPV
-19000
11500
8000
2800
0,15
($1.109,80521)
Proj B
-22000
12500
9000
8000
0,15
$934,98808
flow for each period and then use the following formula for payback period:
AZF Full SUV
(850.000,0000000)
360.000,0000000
440.000,0000000
300.000,0000000
Week 3 Problems
Problem 6-2 Calculating Project NPV
The Best Manufacturing Company is considering a new investment. Financial projections for the
investment are tabulated here. The corporate tax rate is 40 percent. Assume all sales revenue is
received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the
end of the year. All net working capital is recovered at the end of the project.
Year 0
Year 1
Year 2
Year 3
Year 4
$ 13,500
$ 14,000
$ 14,500
$ 11,500
Operating costs
2,900
3,000
3,100
2,300
Depreciation
6,500
6,500
6,500
6,500
370
420
320
?
Investment
$ 26,000
Sales revenue
Net working capital spending
320
a. Compute the incremental net income of the investment for each year. (Do not round intermediate
calculations.)
Net income
Year 1
Year 2
Year 3
Year 4
$
$
$
$
b. Compute the incremental cash flows of the investment for each year. (Do not round intermediate
calculations. Negative amounts should be indicated by a minus sign.)
Cash flow
Year 0
Year 1
Year 2
Year 3
$
$
$
$
c. Suppose the appropriate discount rate is 11 percent. What is the NPV of the project? (Do not round
intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
NPV
Problem 6-7 Project Evaluation
Dog Up! Franks is looking at a new sausage system with an installed cost of $495,000. This cost will be
depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system
can be scrapped for $73,000. The sausage system will save the firm $175,000 per year in pretax
operating costs, and the system requires an initial investment in net working capital of $32,000. If the
tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not
round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
NPV
$
Problem 6-8 Calculating Salvage Value
An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition
cost of $6,190,000 and will be sold for $1,390,000 at the end of the project. If the tax rate is 35 percent, what is the
aftertax salvage value of the asset? Refer to MACRS schedule (Do not round intermediate calculations and round
your answer to 2 decimal places. Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
Aftertax salvage value
$
Problem 6-9 Calculating NPV
Howell Petroleum is considering a new project that complements its existing business. The machine
required for the project costs $3.88 million. The marketing department predicts that sales related to
the project will be $2.58 million per year for the next four years, after which the market will cease to
exist. The machine will be depreciated down to zero over its four-year economic life using the straight-
line method. Cost of goods sold and operating expenses related to the project are predicted to be 20
percent of sales. Howell also needs to add net working capital of $230,000 immediately. The additional
net working capital will be recovered in full at the end of the project’s life. The corporate tax rate is 34
percent. The required rate of return for Howell is 15 percent.
What is the value of the NPV for this project? (Enter your answer in dollars, not millions of dollars, i.e.
1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places.
(e.g., 32.16))
Problem 6-11 Cost-Cutting Proposals
Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying a
new machine press for $540,000 is estimated to result in $225,000 in annual pretax cost savings. The
press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of
$91,000. The press also requires an initial investment in spare parts inventory of $27,000, along with an
additional $3,200 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent
and its discount rate is 8 percent. Refer to MACRS schedule.
Calculate the NPV of this project. (Do not round intermediate calculations and round your final answer
to 2 decimal places. (e.g., 32.16))
NPV
$
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