| There are 6 problems listed below with point values assigned for each. Each problem corresponds to material from Chapters 1,2,3,4,7 |
| Complete each problem in excel. Submit your excel worksheet in EXCEL format so I can see how you solved the problems. |
| Please | MARK | or | Outline | your answers so I can tell where they are. |
| See questions below. |
| Problem 1 | 4 Points |
| You need money for new equipment. You will take out a loan of $21,500 for a term of 4 years at 3.8 % (PYCY) interest. |
| You and the lender have agreed that this loan will be payed back in one payment at the end of the 4 years. |
| How much will you pay if the lender charges simple interest? |
| How much will you pay if the lender charges compound interest? |
| Problem 2 | 8 Points |
| You are looking at loans and considering a loan of $41,620 from a lender at 5.1% interest over a 5 year period. |
| Show two DIFFERENT ways and calculate the results that demonstrate financial equivalence for this problem. |
| I am looking for two different methods using COMPOUND INTEREST. |
| How much will you pay over the life of the loan in each way? |
| Briefly explain the concept of financial equivalence. What is the book definition? Explain what that means in your own words. |
| Problem 3 | 8 Points |
| You want to buy a boat when you retire. It's a big one and you will need $375,000 in the bank when you retire in 15 years to buy it. |
| You have $21000 to open the account and you will deposit $900 at the end of each month. |
| What yearly rate will you need in the market for this to work? |
| Problem 4 | 8 points |
| You have the plan locked in for the dream boat account. Now you are working on the FUEL Account (it's a big boat). You need $102,000 in that account in 15 years. |
| You are able to place $4050 in to the account at the end of each year. No balance on year 0. First deposit is on year 1. |
| But, you know that won't get you there. |
| You are expecting an inheritance from your late aunt in 5 years. (start the savings account now.. 5 years from now, you will have $$ from aunt). |
| If you can get a 3.6% rate on you account (PYCY)… how much do you need from you Aunt to make this work? |
| Problem 5 | 12 Points |
| Your company is preparing to launch a new product over the next 10 years. |
| The equipment to make this new product will have an initial cost of $154000 to the company. |
| At the end of the project, you believe you can get $26000 for the equipment as salvage. |
| Supplies will cost $1800 the first year and go up by $750 each year. |
| Maintenance costs start at $1510 the first year and will increase by 1.9% each year |
| The company expects to make $18500 the first year and this will increase by 2.1% each year. |
| Create the Cash flow table showing these costs and profits and the net cash flow. |
| If the interest rate is 3.8%, what will be the NPV of the project? |
| What is the book definition of NPV? Put that definition in to your own words. |
| Problem 6 | 10 Points |
| Please examine the provided cash flow table |
| Year | Cash Flow |
| 0 | -9P |
| 1 | -3P |
| 2 | 43000 |
| 3 | 2.5P |
| 4 | 4P |
| 5 | P |
| 6 | -18000 |
| 7 | 2P |
| The interest rate is 3.9% |
| Use the goal seek function to answer these questions. |
| 6a. What is the value of P at 3.9% to make all of the cash flow transactions balance out? |
| 6b. If P is $5500 what rate do we need? |