FIN 467 Week 2 Individual Assignment Problem Set
This document of FIN 467 Week 2 Individual Assignment Problem Set includes answers to the next questions:
1) What is the present value of the following future amounts?
2) How many years will the following take?
3) At what annual rate would the following have to be invested?
4) What is the accumulated sum of each of the following streams of payments?
5) a. Calculate the future sum of $5,000, given that it will be held in the bank five years at an annual interest rate of 6 percent.
b. Recalculate part (a) using a compounding period that is (1) semiannual and (2) bimonthly
c. Recalculate parts (a) and (b) for a 12 percent annual interest rate.
d. Recalculate part (a) using a time horizon of 12 years (annual interest rate is still 6 percent).
e. With respect to the effect of changes in the stated interest rate and holding periods on future sums in parts (c) and (d), what conclusions do you draw
6) Stefani Moore purchased a new house for $150,000. She paid $30,000 down and agreed to pay the rest over the next 25 years in 25 equal annual payments that include principal payments plus 10 percent compound interest on the unpaid balance. What will these equal payments be?
7) In 10 years, you plan to retire and buy a house in Marco Island, Florida. The house you are looking at currently costs $125,000 and is expected to increase in value each year at a rate of 5 percent. Assuming you can earn 10 percent annually on your investments, how much must you invest at the end of each of the next 10 years to be able to buy your dream home when you retire?
8) Artie's Soccer Ball Company is considering a project with the following cash flows:
Initial outlay = $750,000
Incremental after-tax cash flows from operations Years 1-4 = $250,000 per year
Compute the NPV of this project if the company's discount rate is 12%
9) Your company is considering a project with the following cash flows:
Initial outlay = $1,748.80
Cash flow Years 1-6 = $500
Compute the IRR on the project
10) You are considering investing in a project with the following year-end after-tax cash flows:
Year 1: $5,000
Year 2: $3,200
Year 3: $7,800
If the initial outlay for the project is $12,113, compute the project's IRR.