PV and FV
Skill-Building
Problems.
1. A single cash flow of
$1,673.48 will be received in 4 periods. For this cash flow, the appropriate
discount rate / period is 7.8%.
What is the present value of this single cash flow?
2. A single cash flow of $932.47
is available now (in period 0). For this cash flow, the appropriate
discount rate / period is 3.9%. What is the period 4 future
value of this single cash flow?
Annuity
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Skill-Building Problems.
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1. An annuity pays $142.38 each period for 6 periods. For these
cash flows, the appropriate discount
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rate / period is 4.5%. What is the present value of this
annuity?
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2. An annuity pays $63.92 each period for 4 periods. For these
cash flows, the appropriate discount
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rate / period is 9.1%. What is the period 5 future value of this
annuity?
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Net
Present Value
Skill-Building
Problems.
1. A project requires a current
investment of $189.32 and yields future expected cash flows of
$45.19, $73.11, $98,54, $72.83,
and $58.21 in periods 1 through 5, respectively. All figures are in
thousands of dollars. For these
expected cash flows, the appropriate discount rate is 6.3%. What
is the net present value of this
project?
2. A project requires a current
investment of $54.39 and yields future expected cash flows of
$19.27, $27.33, $34.94, $41.76,
and $32.49 in periods 1 through 5, respectively. All figures are in
thousands of dollars. For these
expected cash flows, the appropriate discount rate starts at 6.4% in
period 1 and declines to 5.4% in
period 5. What is the net present value of this project?
Skill-Building
Problems.
1. A project requires a current
investment of $117.39 and yields future expected cash flows of
$38.31, $48.53, $72.80, $96.31,
and $52.18 in periods 1 through 5, respectively. All figures are in
thousands of dollars. The
inflation rate is 2.7%. For these expected cash flows, the appropriate
Real Discount Rate is 8.6%. What
is the net present value of this project?
2. A project requires a current
investment of $328.47 and yields future expected cash flows of
$87.39, $134.97, $153.28,
$174.99, and $86.41 in periods 1 through 5, respectively. All figures
are in thousands of dollars. The
forecasted inflation rate starts at 3.4% in period 1 and increases to
4.7% in period 5. For these
expected cash flows, the appropriate REAL discount rate starts at
7.8% in period 1 and decreases
to 5.4% in period 5. What is the net present value of this project?
PMT and sensitivity EX
Skill-Building
Problems.
1. To purchase a house, you take
out a 30 year mortgage. The present value (loan amount) of the
mortgage is $217,832. The
mortgage charges an interest rate / year of 9.27%. What is the annual
payment required by this
mortgage? How much of each year's payment goes to paying interest
and how much reducing the
principal balance?
2. In purchasing a house, you
need to obtain a mortgage with a present value (loan amount) of
$175,000. You have a choice of:
(A) a 30 year mortgage at an interest rate / year of 9.74% or (B)
a 15 year mortgage at an
interest rate / year of 9.46%. What is the annual payment required by the
two alternative mortgages? How
much of each year's payment goes to paying interest and how
much reducing the principal
balance by the two alternative mortgages? Which mortgage would
you prefer?
3. Consider a 30 year mortgage
for $442,264 as in the previous section. What would happen if the
interest rate / year dropped
from 9.21% to 7.95%. How much of each year's payment goes to
paying interest vs. how much goes to reducing the principal
under the two interest rates?
Evaluation
Project
1.
Consider about investment project evaluation for
the initial investment of $100.000
and the cash flow of $25.000 in each year in 5 years. The discount rate is
9%, and the require period of payback is 4 years. Use NPV, IRR, PBP and PI.
2.
Note the following information on the annual
cash flows of two mutually exclusive projects under consideration by Wang Food
Markets, Inc.
Year A B
0 $230,000 $260,000
1 10,000 20,000
2 10,000 20,000
3 10,000 20,000
4 10,000 20,000
5 10,000 20,000
Wang requires a 14 percent rate of return on projects of this nature.
a. Compute the NPV of both projects.
b. Compute the internal rate of return on both projects.
c. Compute the profitability index of both projects.
d. Compute the payback period on both projects.
e. Which of the two projects, if either, should Wang accept? Why?
Year A B
0 $230,000 $260,000
1 10,000 20,000
2 10,000 20,000
3 10,000 20,000
4 10,000 20,000
5 10,000 20,000
Wang requires a 14 percent rate of return on projects of this nature.
a. Compute the NPV of both projects.
b. Compute the internal rate of return on both projects.
c. Compute the profitability index of both projects.
d. Compute the payback period on both projects.
e. Which of the two projects, if either, should Wang accept? Why?
