MRK516-W11B-Lab10
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School
Seneca College *
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Course
516
Subject
Finance
Date
Jan 9, 2024
Type
Pages
10
Uploaded by SargentScienceLark23
PV
Present Value
$
-21,565
Interest rate (i)
3%
Term (Year) (n)
5
Compounding periods per year
0
PMT
0
Future Value
$
25,000.00
FV
Present Value
$
-32,500
Interest rate (i)
4%
Term (Year) (n)
7
Compounding periods per year
0
PMT
0
Future Value
$
42,767.78
PV
Present Value
$
-21,524
Interest rate (i)
5%
Term (Year) (n)
3
Compounding periods per year
12
PMT
0
Future Value
$
25,000.00
FV
Present Value
$
-10,000
Interest rate (i)
4%
Term (Year) (n)
10
Compounding periods per year
12
PMT
0
Future Value
$
14,908.33
FV
Present Value
$
-
Interest rate (i)
5%
Term (Year) (n)
1
Compounding periods per year
12
PMT
$
-2,000
Future Value
$
-
1
2
3
4
5
Initial investment
$
(85,000.00)
Cash in flows
$35,000
$35,000
$35,000
$35,000
$35,000
required rate of return
12.00%
Net PV
$41,167.17
An investment that costs $85,000 will return $35,000 per year for 5 years. Determine the net present value
of the investment if the required rate of return is 12%. (ignore taxes). Should the investment be
undertaken?
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1
2
3
4
5
initial investment
$
(195,000.00)
cash flows
-$195,000
$55,000
$55,000
$55,000
$55,000
$55,000
internal rate of return
12.67%
required rate of return
10.00%
Tanya Sinclair, owner of Sinclair Fine Wine, is considering investing $195,000 in a temperature-controlled
storage room. She plans to rent space to customers and expects to generate $55,000 annually (rental cha
miscellaneous expenses other than depreciation).
Instructions:
a) Assuming Tanya wishes to evaluate the project with a five-year time horizon, what is the internal rate o
of the investment? (ignore taxes)
b) Should Tanya make the investment if her required rate of return is 10%?
d wine
arges less
of return
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initial investment
$
126,000.00
cash flows
$21,000
payback peroid
6
The Sunny Valley Wheat Cooperative is considering the construction of a new silo. It will cost $126,000
to construct the silo. Determine the payback period if the expected cash inflows are $21,000 per year.
Year
Project #1
Initial Investment
Cash Flows
Cumulative Cash Flow
Net Present Value
Internal Rate of Return
Payback Period
Project #2
Initial Investment
Cash Flows
Cumulative Cash Flow
Net Present Value
Internal Rate of Return
Payback Period
Project #3
Initial Investment
Cash Flows
Cumulative Cash Flow
Net Present Value
Internal Rate of Return
Payback Period
Project #4
Initial Investment
Cash Flows
Cumulative Cash Flow
Net Present Value
Internal Rate of Return
Payback Period
Project #5
Initial Investment
Cash Flows
Cumulative Cash Flow
0
1
2
3
4
5
6
7
8
$2,000,000
-$2,000,000
$400,000
$600,000
$600,000
$800,000
$600,000
$300,000
$0
$0
-$2,000,000
-$1,600,000
-$1,000,000
-$400,000
$400,000
$1,000,000
$1,300,000
$1,300,000
$1,300,000
$200,106.91
16.48%
3.5
$1,000,000
-$1,000,000
$600,000
$450,000
$250,000
$0
$0
$0
$0
$0
-$1,000,000
-$400,000
$50,000
$300,000
$300,000
$300,000
$300,000
$300,000
$300,000
$56,652
16.83%
1.9
$2,500,000
-$2,500,000
$200,000
$400,000
$700,000
$1,100,000
$1,800,000
$2,100,000
$2,100,000
$2,100,000
-$2,500,000
-$2,300,000
-1900000
-$1,200,000
-$100,000
$1,700,000
$3,800,000
$5,900,000
$8,000,000
$2,818,235
31.13%
4.1
$1,250,000
-$1,250,000
$300,000
$450,000
$450,000
$200,000
$100,000
$0
$0
$0
-$1,250,000
-$950,000
-$500,000
-$50,000
$150,000
$250,000
$250,000
$250,000
$250,000
-$143,285
7.50%
3.3
$750,000
-$750,000
$700,000
$400,000
$0
$0
$0
$0
$0
$0
-$750,000
$50,000
$350,000
$350,000
$350,000
$350,000
$350,000
$350,000
$350,000
Year
Net Present Value
Internal Rate of Return
Payback Period
Project #6
Initial Investment
Cash Flows
Cumulative Cash Flow
Net Present Value
Internal Rate of Return
Payback Period
Project #7
Initial Investment
Cash Flows
Cumulative Cash Flow
Net Present Value
Internal Rate of Return
Payback Period
0
1
2
3
4
5
6
7
8
$182,728
33.33%
$1,000,000
-$1,000,000
$100,000
$400,000
$200,000
$700,000
$400,000
$400,000
$0
$0
-$1,000,000
-$900,000
-$500,000
-$300,000
-$400,000
$800,000
$1,200,000
$1,200,000
$1,200,000
$378,919
23.58%
3.4
$850,000
-$850,000
$350,000
$300,000
$300,000
$250,000
$250,000
$200,000
$200,000
$150,000
-$850,000
-$500,000
-$200,000
$100,000
$350,000
$600,000
$800,000
$1,000,000
$1,150,000
$429,113
28.90%
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PROJECT
1
2
3
4
5
6
7
Investment
NPV
IRR
Payback
-$2,000,000
$200,107
16.48%
3.50
-$1,000,000
$56,652
16.83%
1.89
-$2,500,000
$2,818,235
31.13%
4.06
-$1,250,000
-$143,285
7.50%
3.30
-$750,000
$182,728
33.33%
0.00
-$1,000,000
$378,919
23.58%
3.43
-$850,000
$429,113
28.90%
0.00
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1
0.877
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: P(1+rt)
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(1+ 5)" – 1
(1+)nt – 1
Ordinary Annuity (payments due at the end of each period): FV,
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r.
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3
1.0151 1.0303
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1.0202 1.0406
5
1.0253 1.0510
6
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8
9
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1.0100 1.0201
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1.0800
1.1664
1.2597
1.3605
1.4693
1.5859
1.7138
1.8509
1.9990
2.1589
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1.1881
1.2950
1.4116
1.5386
1.6771
1.8280
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2.1719
2.3674
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2 1.0100 1.0201 1.0302 10404
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1.0253 1.0510 1.0773 1.1041
5
1.0304 1.0615 10934 1.1252
1.0355 1.0721 1.1098 1.1487
1.0407 1.0829 1.1265 1.1717
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1.0564 1.1157 1.1779 12434
12 1.0617 1.1258 1.1956 12682
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15 1.0777 1.1610 12502 13459
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22
7
8
9
10
11
1.4106
1.3439
2.9372
3.1722
3.4259
3.7000
3.3417
3.6425
3.9703
4.3276
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10.0%
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1
0.8340
2
3
0.7462 0.7252 0.7050 0.6853 0.6663 0.6480 0.6302 0.6129
9
10
11
12
13
14
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0.4746
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1. In a future value of 1 table:
a.
b.
C.
a.
b.
Annual
Rate
C.
11%
8%
8%
Annual
Rate
11%
8%
8%
Number of Years
Invested
Save for Later
Number of
Years
Invested
25
16
2. In a present value of an annuity of 1 table: (Round "Rate of Interest" answers to 1 decimal place, e.g. 4.5% and other answers
to 0 decimal places, e.g 45.)
7
eTextbook and Media
11
8
16
Number of
Rents
Involved
25
32
Compounded
28
Annually
Quarterly
Semiannually
Frequency of
Rents
Annually
Semiannually
(a) Rate of Interest
Quarterly
%
(a) Rate of Interest
%
%
%
%
(b) Number of Periods
%
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What is the equivalent worth in year 5 of the following series of income and disbursements, if the interest rate is 10% per year?
Year
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0
0
1-5
6000
6-8
6000
9-14
8000
Answer:
Equation:
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6000
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1.
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10
3.
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12
20
50,000
4
12
4.
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Complete the table:( 2 cw
Principel Rate Timme Interest vale
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(F)
CI)
20,200 9% 4yeors
12, 400 3.2% 6 manthes
29), 30012있 y에
year
19,000|10%/2yos
8,000 2%3 months
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Amortization schedule
Loan amount to be repaid (PV)
$25,000.00
Interest rate (r)
11.00%
Length of loan (in years)
3
a. Setting up amortization table
Formula
Calculation of loan payment
#N/A
Year
Beginning Balance
Payment
Interest
Repayment of Principal
Remaining Balance
1
2
3
b. Calculating % of Payment Representing Interest and Principal for Each Year
Year
Payment % Representing Interest
Payment % Representing Principal
Check: Total = 100%
1
2
3
Formulas
Year
Beginning Balance
Payment
Interest
Repayment of Principal
Remaining Balance
1
#N/A
#N/A
#N/A
#N/A
#N/A
2
#N/A
#N/A
#N/A
#N/A
#N/A
3
#N/A
#N/A
#N/A
#N/A
#N/A
b. Calculating % of Payment Representing Interest and Principal for Each Year
Year
Payment %…
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3.5%
4.0%
4.5%
8.0% 8.5%
9.5%
Period 0.5% 1.0%
1.0000 1.0000
2.0050 2.0100
1
1.5% 2.0% 2.5%
1.0000 1.0000 1.0000
20150 2.0200 2.0250
2
3.2781
3
1.0000
2.0950
3.2940
4.6070
6.0446
4
7
8.1420
9.5491
8
9
10
16.3856 16 8699
18.5312
21.3843
24.5227
27.9750
31.7725
35.9497
26.9964 28.2129
30.8402
40.5447
45.5992
51.1591
57.2750
64.0025
71.4027
58.1767
76.7898 824164
3.0%
5.0% 5.5% 6.0% 6.5% 7.0% 7.5%
9.0%
1.0000 1.0000 1.0000 1.0000
1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2.0300 2.0350 2.0400 2.0450 2.0500 2.0550 2.0600 2.0650 2.0700 2.0750 2.0800 2.0850 2.0900
3.0150 3.0301 3.0452 3.0604 3.0756
3.0909 3.1062 3.1216 3.1370 3.1525 3.1680 3.1836 3.1992 3.2149 3.2306 3.2464
4.0301 4.0604
3.2622
4.0909 4.1216 4.1525 4.1836 4.2149 4.2465 4.2782 4.3101
4.3423
4.3746 4.4072 4.4399 4.4729 4.5061 4.5395
5 5.0503
4.5731
5.1010 5.1523 5.2040 5.2563 5.3091 5.3625 5.4163 5.4707…
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1-
What is the present value of $4000 to be received in 6 years, if the interest rate is 5% p.a., compounding monthly?
a.
$2965
b.
$2985
c.
$2865
d.
$2800
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- Assuming a 14% interest rate, which of the following is closest to the total present value of the following payments? Year 3 $12,000 Year 5 $10,000 Present Value of $1 Periods 14% 1 0.877 2 0.769 3 0.675 4 0.592 5 0.519 0.456 0.400 6 7 8 9 0.351 0.308 10 0,270 $12.978 $13,290 $8,100 O $32,054 Present Value of Annuity Periods 14% 0.877 2 1.647 3 2.322 4 2.914 3.433 3.889 4.288 1 5 6 7 8 9 10 4.639 4.946 5.216arrow_forwardSimple Interest: I = Prt Simple Interest Future Value: FV = : P(1+rt) Compound Interest: FV = P(1+)nt Annual Yield: APY (1+ 5)" – 1 (1+)nt – 1 Ordinary Annuity (payments due at the end of each period): FV, = pymt · Annuity Due (payments due in the beginning of each period): FV4= pymt · (1+5)nt – 1 (1+5) r. n Present Value of Annuity: P(1+)nt = FV (annuity) (1+ 5)nt – 1 Simple Interest Amortized Loan: pymt- P(1+)n (1+ 5)nt – 1 Simple Interest Amortized Loan Unpaid Balance (after t years): P(1+5)nt – pymt- (1+ 5)nt – 1 Payout Annuity: P(1+)nt = pymt · n (1+c 1- 1+r Payout Annuity with COLA: P pymt · r - carrow_forwardFuture value interest factor of $1 per period at i% for n periods, FVIF(i,n). Period 0.5% 1.0% 1 2 3 1.0151 1.0303 4 1.0202 1.0406 5 1.0253 1.0510 6 7 8 9 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 1.0050 1.0100 1.0150 1.0200 1.0250 1.0300 1.0350 1.0400 1.0450 1.0500 1.0550 1.0600 1.0650 1.0700 1.0750 1.0100 1.0201 1.0302 1.0404 1.0506 1.0609 1.0712 1.0816 1.0920 1.1025 1.1130 1.1236 1.1342 1.1449 1.1556 1.0457 1.0612 1.0769 1.0927 1.1087 1.1249 1.1412 1.1576 1.1742 1.1910 1.2079 1.2250 1.2423 1.0614 1.0824 1.1038 1.1255 1.1475 1.1699 1.1925 1.2155 1.2388 1.2625 1.2865 1.3108 1.3355 1.0773 1.1041 1.1314 1.1593 1.1877 1.2167 1.2462 1.2763 1.3070 1.3382 1.3701 1.4026 1.4356 1.0304 1.0615 1.0934 1.1262 1.1597 1.1941 1.2293 1.2653 1.3023 1.3401 1.3788 1.4185 1.4591 1.5007 1.5433 1.0355 1.0721 1.1098 1.1487 1.1887 1.2299 1.2723 1.3159 1.3609 1.4071 1.4547 1.5036 1.5540 1.6058 1.6590 1.0407 1.0829 1.1265 1.1717 1.2184 1.2668 1.3168 1.3686 1.4221 1.4775 1.5347 1.5938…arrow_forward
- Factor Monthly Interest Rate: Annual Interest Rate: PV: PV: Annual Interest Rate: VY: Facts n: (Number of years) N: (Number of compounding periods) Compounded (Y): Table Method FV $60,000 $247.938 4 48 Monthly PV Iarrow_forwardSam Long anticipates he will need approximately $226,800 in 15 years to cover his 3-year-old daughter's college bills for a 4-year degree. How much would he have to invest today at an interest rate of 8% compounded semiannually? (Use the Table provided.) (Do not round intermediate calculations. Round your answer to the nearest cent.) Amountarrow_forwardYou choose to invest your $3,110 income tax refund check (rather than spend it!) in an account earning 5% compounded annually. How much will the account be worth in 30 years? (Use the Table provided.) (Round your answer to the nearest cent.) Worth OVi 5: acerarrow_forward
- FV = 11 = = PV: FV: Annual Interest Rate: I/Y: n: (Number of years) N: (Number of compounding periods) Compounded (Y): PV Facts 239000 Table Method X X $239,000 20% Factor 5% 15.3674 14 Quarterly 56arrow_forwardWhat compound interest rate j, is equivalent over 11-year period to a compound interest rate of i12=2.26 % for 8 years followed by a compount interest of i=7.31 % for the next 3 years ? Answer: 3.86%arrow_forwardSuppose the term structure of interest rates is shown below: Term Rate (EAR%) 5.00% 4.80% O $2,408 1 year 2 years 3 years 5 years 10 years 20 years The present value (PV) of receiving $1,100 per year with certainty at the end of the next three years is closest to O $3,612 O $4,214 O $3,010 4.60% 4.50% 4.25% 4.15%arrow_forward
- Future value interest factor of $1 per period at i% for n periods, FVIF(in). Period 0.5% 10% 15% 20% 3.0% 1 6 8.0% 1.0800 1.1664 1.2597 1.3605 1.4693 1.5859 1.7138 1.8509 1.9990 2.1589 23316 25182 2.7196 9.0% 1.0900 1.1881 1.2950 1.4116 1.5386 1.6771 1.8280 1.9926 2.1719 2.3674 2.5804 28127 3.0658 1.0050 10100 10150 1.0200 2 1.0100 1.0201 1.0302 10404 3 1.0151 1.0303 1.0457 1.0612 4 1.0202 1.0406 1.0614 1.0824 1.0253 1.0510 1.0773 1.1041 5 1.0304 1.0615 10934 1.1252 1.0355 1.0721 1.1098 1.1487 1.0407 1.0829 1.1265 1.1717 1.0459 1.0937 1.1434 1.1951 1.0511 1.1046 1.1605 12190 1.0564 1.1157 1.1779 12434 12 1.0617 1.1258 1.1956 12682 13 1.0570 1.1381 12136 12936 14 1.0723 1.1495 1.2318 13195 15 1.0777 1.1610 12502 13459 16 1.0831 1.1726 1.2690 1.3728 17 10885 1.1843 12880 1.4002 18 1.0939 1.1961 1.3073 1.4282 19 1.0994 12081 1.3270 1.4568 20 1.1049 1.2202 1.3469 1.4859 21 1.1104 1.2324 13671 15157 22 7 8 9 10 11 1.4106 1.3439 2.9372 3.1722 3.4259 3.7000 3.3417 3.6425 3.9703 4.3276 4.7171…arrow_forwardPresent value interest factor of $1 per period at i% for n periods, PVIF(i,n). 9.5% 10.0% Period 0.5% 1.0% 1 0.8340 2 3 0.7462 0.7252 0.7050 0.6853 0.6663 0.6480 0.6302 0.6129 9 10 11 12 13 14 18 0.4746 1.5% 20% 2.5% 3.0 % 3.5 % 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0 % 7.5 % 8.0% 8.5% 9.0 % 0.9950 0.9901 0.9852 0.9804 0.9756 0.9709 0.9662 0.9615 0.9569 0.9524 0.9479 0.9434 0.9390 0.9346 0.9302 0.9259 0.9217 0.9174 0.9132 0.9091 0.9901 0.9803 0.9707 0.9612 0.9518 0.9426 0.9335 0.9246 0.9157 0.9070 0.8985 0.8900 0.8817 0.8734 0.8653 0.8573 0.8495 0.8417 0.9851 0.9706 0.9563 0.9423 0.9286 0.9151 0.9019 0.8890 0.8264 0.8763 0.8638 0.8516 0.8396 0.8278 0.8163 0.8050 0.7938 0.9802 0.9610 0.9422 0.9238 0.9060 0.8885 0.8714 0.8548 0.8386 0.7829 0.7722 0.7617 0.7513 08227 0.8072 0.7921 0.7773 0.7629 0.7488 0.7350 0.7216 0.7084 0.9754 0.9515 0.9283 0.9057 0.8839 0.8626 0.8420 0.8219 0.8025 0.6956 0.6830 0.7835 0.7651 0.7473 0.7299 0.7130 0.6966 0.6806 0.9705 0.9420 0.9145 0.8880 0.8623 0.8375 0.8135…arrow_forwardDetermine the future value of the following single amounts: Invested Amount Interest Rate No. of Periods1. $ 15,000 6% 122. 20,000 8 103. 30,000 12 204. 50,000 4 12arrow_forward
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