Sheet1Q1450usd6%to be repaid375usdmth 4($367.59)375usdmth
10($356.76)$274.35($274.35)Q210700usdJuanita has an opportunity to
invest in her friend's clothing store. The initial investment is
$10,700 and the expected annual cashflows thereafter are as
follows: {$400; $500; $1,000; $2,000; $2,000; $4,000; $4,000}. What
is Juanita's IRR on this investment? (No more than two decimals in
the percentage but do not enter the %
sign.)-10700400500100020002000400040005.07%Q3delta investmentyear
1year 2year 3year 4year 5year 6year 7year 8Fabrice is looking to
buy a new plug-in hybrid vehicle. The purchase price is $11,000
more than a similar conventional model. However, he will receive a
$4,900 federal tax credit that he will realize at the end of the
year. He estimates that he will save $1,300 per year in gas over
the conventional model; these cash outflows can be assumed to occur
at the end of the year. The cost of capital (or interest rate) for
Fabrice is 6%. How long will Fabrice have to own the vehicle to
justify the additional expense over the conventional model? In
other words, what is the DISCOUNTED payback period in years?
Discount future cash flows before calculating payback rounded UP to
a whole year. (Enter just the number without comma and round off
decimals.)6%-11000490013001300130013001300130013001300-1100062001300130013001300130013001300($5,849.06)($1,157.00)($1,091.51)($1,029.72)($971.44)($916.45)($864.57)($815.64)12345678($5,849.06)($7,006.05)($8,097.56)($9,127.28)($10,098.71)($11,015.16)($11,879.74)($12,695.37)$5,150.94$3,993.95$2,902.44$1,872.72$901.29($15.16)Q4investment-1400-2200In
high school Jeff often made money in the summer by mowing lawns in
the neighborhood. He just finished his freshman year of college
and, after taking a Business 101 class, he has some ideas about how
to scale up his lawn mowing operation. Previously, he had used his
father's push mower, but he is thinking about getting a riding
mower that will save time and allow him to do more lawns. He found
a used, zero turn, riding mower on Craigslist for $1,400. He will
also need a trailer to pull the mower behind his pickup; that will
cost him an additional $800. With the new mower he can take on an
additional 29 lawns per week at an average cash inflow of $21 per
lawn he will receive at the end of each week. He has 12 weeks of
summer in which to mow lawns. (For convenience, assume that the
mower and trailer will have no value after Jeff is done with his
work this summer.) The discount rate for Jeff is 5% (note that this
is an annual rate). What is the Net Present Value of the
mower/trailer project?-800lawns29cash flow21total/wk609no of
weeksr5%yearly0.0962%weeklyinvestment-2200wk1609608.4149855908$7,262.53$5,062.53wk2609607.8305331551wk3609wk4609wk5609wk6609wk7609wk8609wk9609wk10609wk11609wk12609Q5255000usdDa
Feng is looking to refinance his home because rates have gone down
since he purchased the house 5 years ago. He started with a 30-year
fixed-rate mortgage of $255,000 at an annual rate of 6.00%. He has
to make monthly payments. He can now get a 25-year fixed-rate
mortgage at an annual rate of 5.50% on the remaining balance of his
initial mortgage. This loan also requires monthly payments. In
order to re-finance, Da Feng will need to pay closing costs of
$4,300. These costs are out of pocket and cannot be rolled into the
new mortgage. How much will refinancing save Da Feng? (i.e. What is
the NPV of the refinancing
decision?)360rates6%yearly($1,528.85)initial valueno ratevalue
rateinterest/ratevalue paidremaining valuepaid till
now602550001($1,528.85)1275$253.85$254,746.15$254,746.152($1,528.85)1273.7307308043$255.12$254,491.02refinance$254,491.023($1,528.85)1272.4551152626$256.40$254,234.62$237,288.61$254,234.624($1,528.85)1271.1731216432$257.68$253,976.94300rates$253,976.945($1,528.85)1269.8847180558$258.97$253,717.975.50%yearly$253,717.976($1,528.85)1268.5898724503$260.26$253,457.71($1,457.16)$253,457.717($1,528.85)1267.2885526169$261.57$253,196.15$253,196.158($1,528.85)1265.9807261843$262.87$252,933.27investment4300$252,933.279($1,528.85)1264.6663606195$264.19$252,669.08c1$71.69$11,674.91$252,669.0810($1,528.85)1263.3454232269$265.51$252,403.58c2$71.69$7,374.91$252,403.5811($1,528.85)1262.0178811473$266.84$252,136.74c3$71.69$252,136.7412($1,528.85)1260.6837013574$268.17$251,868.57c4$71.69$251,868.5713($1,528.85)1259.3428506685$269.51$251,599.06c5$71.69$251,599.0614($1,528.85)1257.9952957261$270.86$251,328.20c6$71.69$251,328.2015($1,528.85)1256.641003009$272.21$251,055.99c7$71.69$251,055.9916($1,528.85)1255.2799388284$273.57$250,782.41c8$71.69$250,782.4117($1,528.85)1253.9120693268$274.94$250,507.47c9$71.69$250,507.4718($1,528.85)1252.5373604778$276.32$250,231.16c10$71.69$250,231.1619($1,528.85)1251.1557780845$277.70$249,953.46c11$71.69$249,953.4620($1,528.85)1249.7672877792$279.09$249,674.37c12$71.69$249,674.3721($1,528.85)1248.3718550224$280.48$249,393.89c13$71.69$249,393.8922($1,528.85)1246.9694451018$281.88$249,112.00c14$71.69$249,112.0023($1,528.85)1245.5600231316$283.29$248,828.71c15$71.69$248,828.7124($1,528.85)1244.1435540516$284.71$248,544.00c16$71.69$248,544.0025($1,528.85)1242.7200026261$286.13$248,257.87c17$71.69$248,257.8726($1,528.85)1241.2893334436$287.56$247,970.30c18$71.69$247,970.3027($1,528.85)1239.8515109151$289.00$247,681.30c19$71.69$247,681.3028($1,528.85)1238.406499274$290.45$247,390.85c20$71.69$247,390.8529($1,528.85)1236.9542625746$291.90$247,098.95c21$71.69$247,098.9530($1,528.85)1235.4947646918$293.36$246,805.59c22$71.69$246,805.5931($1,528.85)1234.0279693196$294.83$246,510.77c23$71.69$246,510.7732($1,528.85)1232.5538399705$296.30$246,214.47c24$71.69$246,214.4733($1,528.85)1231.0723399746$297.78$245,916.69c25$71.69$245,916.6934($1,528.85)1229.5834324788$299.27$245,617.42c26$71.69$245,617.4235($1,528.85)1228.0870804455$300.77$245,316.65c27$71.69$245,316.6536($1,528.85)1226.583246652$302.27$245,014.38c28$71.69$245,014.3837($1,528.85)1225.0718936896$303.78$244,710.60c29$71.69$244,710.6038($1,528.85)1223.5529839624$305.30$244,405.30c30$71.69$244,405.3039($1,528.85)1222.0264796865$306.83$244,098.47c31$71.69$244,098.4740($1,528.85)1220.4923428892$308.36$243,790.11c32$71.69$243,790.1141($1,528.85)1218.9505354079$309.90$243,480.20c33$71.69$243,480.2042($1,528.85)1217.4010188893$311.45$243,168.75c34$71.69$243,168.7543($1,528.85)1215.843754788$313.01$242,855.74c35$71.69$242,855.7444($1,528.85)1214.2787043663$314.58$242,541.17c36$71.69$242,541.1745($1,528.85)1212.7058286924$316.15$242,225.02c37$71.69$242,225.0246($1,528.85)1211.1250886402$317.73$241,907.29c38$71.69$241,907.2947($1,528.85)1209.5364448877$319.32$241,587.97c39$71.69$241,587.9748($1,528.85)1207.9398579164$320.91$241,267.06c40$71.69$241,267.0649($1,528.85)1206.3352880103$322.52$240,944.54c41$71.69$240,944.5450($1,528.85)1204.7226952547$324.13$240,620.41c42$71.69$240,620.4151($1,528.85)1203.1020395352$325.75$240,294.66c43$71.69$240,294.6652($1,528.85)1201.4732805372$327.38$239,967.28c44$71.69$239,967.2853($1,528.85)1199.8363777442$329.02$239,638.26c45$71.69$239,638.2654($1,528.85)1198.1912904372$330.66$239,307.60c46$71.69$239,307.6055($1,528.85)1196.5379776937$332.32$238,975.28c47$71.69$238,975.2856($1,528.85)1194.8763983865$333.98$238,641.30c48$71.69$238,641.3057($1,528.85)1193.2065111827$335.65$238,305.65c49$71.69$238,305.6558($1,528.85)1191.5282745429$337.33$237,968.33c50$71.69$237,968.3359($1,528.85)1189.84164672$339.01$237,629.32c51$71.69$237,629.3260($1,528.85)1188.1465857579$340.71$237,288.61c52$71.69$237,288.61c53$71.69c54$71.69c55$71.69c56$71.69c57$71.69c58$71.69c59$71.69c60$71.69c61$71.69c62$71.69c63$71.69c64$71.69c65$71.69c66$71.69c67$71.69c68$71.69c69$71.69c70$71.69c71$71.69c72$71.69c73$71.69c74$71.69c75$71.69c76$71.69c77$71.69c78$71.69c79$71.69c80$71.69c81$71.69c82$71.69c83$71.69c84$71.69c85$71.69c86$71.69c87$71.69c88$71.69c89$71.69c90$71.69c91$71.69c92$71.69c93$71.69c94$71.69c95$71.69c96$71.69c97$71.69c98$71.69c99$71.69c100$71.69c101$71.69c102$71.69c103$71.69c104$71.69c105$71.69c106$71.69c107$71.69c108$71.69c109$71.69c110$71.69c111$71.69c112$71.69c113$71.69c114$71.69c115$71.69c116$71.69c117$71.69c118$71.69c119$71.69c120$71.69c121$71.69c122$71.69c123$71.69c124$71.69c125$71.69c126$71.69c127$71.69c128$71.69c129$71.69c130$71.69c131$71.69c132$71.69c133$71.69c134$71.69c135$71.69c136$71.69c137$71.69c138$71.69c139$71.69c140$71.69c141$71.69c142$71.69c143$71.69c144$71.69c145$71.69c146$71.69c147$71.69c148$71.69c149$71.69c150$71.69c151$71.69c152$71.69c153$71.69c154$71.69c155$71.69c156$71.69c157$71.69c158$71.69c159$71.69c160$71.69c161$71.69c162$71.69c163$71.69c164$71.69c165$71.69c166$71.69c167$71.69c168$71.69c169$71.69c170$71.69c171$71.69c172$71.69c173$71.69c174$71.69c175$71.69c176$71.69c177$71.69c178$71.69c179$71.69c180$71.69c181$71.69c182$71.69c183$71.69c184$71.69c185$71.69c186$71.69c187$71.69c188$71.69c189$71.69c190$71.69c191$71.69c192$71.69c193$71.69c194$71.69c195$71.69c196$71.69c197$71.69c198$71.69c199$71.69c200$71.69c201$71.69c202$71.69c203$71.69c204$71.69c205$71.69c206$71.69c207$71.69c208$71.69c209$71.69c210$71.69c211$71.69c212$71.69c213$71.69c214$71.69c215$71.69c216$71.69c217$71.69c218$71.69c219$71.69c220$71.69c221$71.69c222$71.69c223$71.69c224$71.69c225$71.69c226$71.69c227$71.69c228$71.69c229$71.69c230$71.69c231$71.69c232$71.69c233$71.69c234$71.69c235$71.69c236$71.69c237$71.69c238$71.69c239$71.69c240$71.69c241$71.69c242$71.69c243$71.69c244$71.69c245$71.69c246$71.69c247$71.69c248$71.69c249$71.69c250$71.69c251$71.69c252$71.69c253$71.69c254$71.69c255$71.69c256$71.69c257$71.69c258$71.69c259$71.69c260$71.69c261$71.69c262$71.69c263$71.69c264$71.69c265$71.69c266$71.69c267$71.69c268$71.69c269$71.69c270$71.69c271$71.69c272$71.69c273$71.69c274$71.69c275$71.69c276$71.69c277$71.69c278$71.69c279$71.69c280$71.69c281$71.69c282$71.69c283$71.69c284$71.69c285$71.69c286$71.69c287$71.69c288$71.69c289$71.69c290$71.69c291$71.69c292$71.69c293$71.69c294$71.69c295$71.69c296$71.69c297$71.69c298$71.69c299$71.69c300$71.69
Q6 gresita18677.2MUSD7.2The United States purchased Alaska in
1867 for $7.2M (where M stands for million). Assume that federal
tax revenue from the state of Alaska (net federal expenditures) is
$55.1M in 2012 and that tax revenue started in 1868 and has
steadily increased by 3% annually since then. Assume that the cost
of capital (or interest rate) is 6%. What is the NPV of the Alaska
purchase, assuming that you are in 1867 looking forward? (Enter
just the number in dollars without the $ sign or a comma and round
off
decimals.)1867-7200000$25,624,691.48$18,424,691186878089218698043191870828449187185330218728789011873905268187493242618759603991876989211187710188881878104945418791080938188011133661881114676718821181170188312166051884125310318851290696188613294171887136930018881410379188914526901890149627118911541159189215873941893163501518941684066189517345881896178662618971840224189818954311899195229419002010863190120711891902213332419032197324190422632441905233114119062401075190724731081908254730119092623720191027024311911278350419122867009191329530201914304161019153132859191632268441917332365019183423359191935260601920363184219213740797192238530211923396861219244087670192542103001926433660919274466707192846007091929473873019304880892193150273181932517813819335333482193454934871935565829119365828040193760028811938618296819396368457194065595101941675629619426958985194371677541944738278719457604270194678323981947806737019488309391194985586731950881543319519079896195293522931953963286219549921848195510219503195610526088195710841871195811167127195911502141196011847205196112202621196212568700196312945761196413334134196513734158196614146183196714570568196815007685196915457916197015921653197116399303197216891282197317398020197417919961197518457560197619011287197719581625197820169074197920774146198021397371198122039292198222700470198323381485198424082929198524805417198625549579198726316067198827105549198927918715199028756277199129618965199230507534199331422760199432365443199533336406199634336498199735366593199836427591199937520419200038646031200139805412200240999575200342229562200443496449200544801342200646145383200747529744200848955636200950424305201051937035201153495146201255100000
Q7yearc not discountedThis question introduces you to the
concept of an annuity with growth. The formulae is given on p.3,
equation (7), of the Note on Formulae, but I would encourage you to
try doing it in Excel as well. (If the first cash flow is C, the
next one will be C(1+g), and so on, where g is the growth rate in
cash flow). As an example, the present value of an annuity that
starts one year from now at $100, and grows at 5%, with the last
cash flow in year 10, when the discount rate is 7%, is $860.
Confirm this before attempting the problem using both the formula
and excel. What is the NPV of of a new software project that costs
$900,000 today, but has a cash flow of $180,000 in year 1 that
grows at 7.0% per year till year 20? Similar investments earn 7.6%
per year. (Enter just the number in dollars without the $ sign or a
comma and round off
decimals.)05%7%time110093.45794392520-9000007%7.60%210591.711066468711800003110.2589.996840927221926004115.762588.314656984732060825121.55062586.66391573264220507.746127.6281562585.04402945725235943.28187134.009564062583.454421436252459.3115268140.710042265681.89452570237270131.463332829147.745544378980.36378690428289040.665766117410155.132821597978.86166004619309273.5123697457859.762847578210330922.6582356279$859.7611354087.244312121912378873.351413970513405394.486012948414433772.100033854815464136.147036224716496625.677328760517531389.474741773818568586.73797369819608387.809631856920650974.9563060869total
spend$3,174,280.33$2,274,280.33Q8year
11400080002200020560.7476635514Diane has just turned 18 and also
completed high school. She is wondering about the value of a
college education. She is pretty good with numbers, and driven by
financial considerations only, so she sits down to calculate
whether it is worth the large sum of money involved. She knows that
her first year tuition will be $14,000, due at the beginning of the
year (that is, right away). Based on historical trends she
estimates that tuition will rise at 5% per year for the 4 years she
is in school. She also estimates that her living expense above and
beyond tuition will be $8,000 per year (assume this occurs at the
end of the year) for the first year and will increase $500 each
year thereafter to keep up with inflation. She does not plan to
work at all while attending school. Were she to forgo college she
would be able to make $23,000 per year out of high school and
expects that to grow 4% annually. With the college degree, she
estimates that she will earn $43,000 per year out of college, again
with annual 4% increases in salary. Either way, she plans to work
until 63 (she begins college right away). The interest/discount
rate is 7%. What is the NPV of her college education? (Note: All
cash flows except tuition payments occur at the end of the
year.)year 21470085002320020263.7784959385year
31543590002443519946.238621828year
416206.75950025706.7519611.55649230275%7%80382.3212736206
4%year 0-22000-22,00018year 123,000-23200-46,200019year
223,920-24435-48,355020year 324,877-25706.75-50,584021year
425,8720-25,872022year 526,9074300016,0934300023year
627,9834472016,7374472024year 729,10246508.817,40646508.825year
830,26648369.15218,10348369.15226year
931,47750303.9180818,82750303.9180827year
1032,73652316.074803219,58052316.074803228year
1134,04654408.71779532820,36354408.71779532829year
1235,40756585.066507141121,17856585.066507141130year
1336,82458848.469167426822,02558848.469167426831year
1438,29761202.407934123822,90661202.407934123832year
1539,82963650.504251488823,82263650.504251488833year
1641,42266196.524421548424,77566196.524421548434year
1743,07968844.385398410325,76668844.385398410335year
1844,80271598.160814346726,79671598.160814346736year
1946,59474462.087246920627,86874462.087246920637year
2048,45877440.570736797428,98377440.570736797438year
2150,39680538.193566269330,14280538.193566269339year
2252,41283759.721308920131,34883759.721308920140year
2354,50887110.110161276932,60287110.110161276941year
2456,68890594.51456772833,90690594.51456772842year
2558,95694218.295150437135,26294218.295150437143year
2661,31497987.026956454636,67397987.026956454644year
2763,767101906.508034712838,140101906.508034712845year
2866,317105982.768356101339,665105982.768356101346year
2968,970110222.079090345441,252110222.079090345447year
3071,729114630.962253959242,902114630.962253959248year
3174,598119216.200744117544,618119216.200744117549year
3277,582123984.848773882246,403123984.848773882250year
3380,685128944.242724837548,259128944.242724837551year
3483,913134102.01243383150,189134102.01243383152year
3587,269139466.092931184352,197139466.092931184353year
3690,760145044.736648431754,285145044.736648431754year
3794,390150846.526114368956,456150846.526114368955year
3898,166156880.387158943758,714156880.387158943756year
39102,093163155.602645301461,063163155.602645301457year
40106,176169681.826751113563,505169681.826751113558year
41110,423176469.09982115866,046176469.09982115859year
42114,840183527.863814004468,687183527.863814004460year
43119,434190868.978366564671,435190868.978366564661year
44124,211198503.737501227274,292198503.737501227262year
45129,180206443.887001276277,264206443.8870012762The timing of the
tuition payments was done wrong. Unlike all other cash flows in
this problem, the tuitions in both years are paid at the beginning
of the
year$553,442.29$105,864.76$752,726.66$105,864.76$118,902.05???alternativeQ9empty
lot500008%(15 points) Rafael owned an apartment building that
burned down. The empty lot is worth $50,000 and Rafael has received
$330,000 from the insurance company. Rafael plans to build another
apartment building that will cost $260,000. His real estate adviser
estimates that the expected value of the finished building on the
real estate market will be $355,000 next year. The
discount/interest rate is 8%. What are the NPV and IRR of this
decision?insurance received330000building costs260000finished
building
costs355000328703.7037037037IRR14.52%NPV18703.703703703788703.7037037037$18,704;
14.52%Q105200003 years ago4%
annually$270,966.13($249,033.87)35m180001733.3333333333521733.33333333337120.435493965734m280001739.1111111111523472.44444444447144.170278945633m380001744.9081481481525217.35259259267167.984179875532m480001750.724508642526968.07710123467191.87746047531m580001756.5602570041528724.63735823877215.850385343330m680001762.4154578608530487.05281609957239.903219961129m780001768.2901760537532255.34299215317264.036230694328m880001774.1844766405534029.52746879377288.249684796627m980001780.098424896535809.62589368977312.543850412626m1080001786.0320863123537595.6579800027336.918996580725m1180001791.9855266539387.6435066027361.375393235924m1280001797.9588116887541185.60231829077385.913311213423m1380001803.9520077276542989.55432601837410.533022250822m1480001809.9651810867544799.5195071057435.234798991621m1580001815.998398357546615.51790546217460.018914988220m1680001822.0517263515548437.56963181367484.885644704919m1780001828.125232106550265.69486391967509.835263520518m1880001834.2189828797552099.91384679947534.868047732317m1980001840.333046156553940.24689295547559.984274558116m2080001846.4674896432555786.71438259857585.184222139915m2180001852.6223812753557639.33676387387610.46816954714m2280001858.7977892129559498.13455308677635.836396778913m2380001864.9937818436561363.12833493037661.289184768112m2480001871.2104277831563234.33876271347686.82681538411m2580001877.4477958757565111.78655858917712.449571435310m2680001883.7059551953566995.49251378437738.15773667349m2780001889.9849750459568885.47748883027763.95159579578m2880001896.2849249628570781.7624137937789.83143444837m2980001902.6058747126572684.36828850577815.79753922986m3080001908.947894295574593.31618280077841.85019769395m3180001915.3110539427576508.62723674337867.98969835294m3280001921.6954241225578430.32266086587894.21633068083m3380001928.1010755362580358.42373640217920.53038511642m3480001934.5280791213582292.95181552347946.93215306671m3580001940.9765060517584233.92832157527973.42192691030m3680001947.4464277386586181.37474931378000($586,181.37)271869.3518102677($314,312.02)Here
the calculations are easy if you understand a key aspect of
finance: where does value come from? Look to the future to figure
out value.
Sheet2
Sheet31101.50%7333.3333333333100%
