Solutions to Tvm

14. How close does the terminal value in part 2 get to the present value using the growing annuity formula in part 3?

b. If you inherited $100,000 today and invested all of it in a security that paid an 8% rate of return, how much would you have in 15 years?

1. Consider the $50,000 excess cash. Assume that Gary invests the funds in one-year CD.

It is much easier to calculate the FV of annuity when the payments are made at semiannual compounding, the periodic rate is simply the nominal rate divided by two (number of compounding periods per year). Thus, the result should be:

P = F(1 + i)-N where i is 15% as mentioned in the case suggestions and N is 8 as we found above, and F is $1.2375B

33) Each year for eight years, an investment will generate incremental sales of $8,000 and cash operating expenses of $2,500. The applicable tax rate is 30% and depreciation is $2,000. What is the net cash flows for each of the eight years?

a. I = 4%, PV = $74,000, N = 20, FV = $162,143.11 a. Using Excel enter '=-FV(4%,20,,74000) = $162,143.11 salary needed to keep pace with inflation. b. FV = $2 million, N = 25, I = 8%, PMT = $27,357.26 a. Using Excel, enter '=-PMT(8%,25,0,2000000)' = $27,357.26 as the necessary annual payment to be saved. c. PMT = $160,000, N = 20, I = 4%, PV = $2,174,452.22 a. Using Excel, enter '=-PV(4%,20,160000)' = $2,174,452.22 needed for retirement. d. FV = $3.5 million, N = 30, I = 7%, PMT = $37,052.41 a. Using Excel, enter '=-PMT(7%,30,0,3500000)' = $37,052.41 annual payment to be saved.

If the present is Year 0 and rates compound annually, in what year does the first outlay of $45,000 occur? Hint, you’re using the perpetuity approach to valuation.

1. If Mrs. Beach wanted to invest a lump sum of money today to have $100,000 when she retired at 65 (she is 40 years old today) how much of a deposit would she have to make if the interest rate on the C.D. was 5%?

A person deposited $500 in a savings account that pays 5% annual interest that is compounded yearly. At the end of 10 years, how much money will be in the savings account? (Bluman, A. G. 2005, page 230).

c. What is the future value if the payments are invested with the First National Bank, which

In question four, Janet was asked to solve a question that deals with annuity payments, specifically, ordinary annuities. It starts by asking of how much you will make if you add $2,000 every year and it is compounded by 10% interest every year. These, for the most part, are future value problems. The first one comes out to be a future value of $12,210.20, which does not satisfy the need for $20,000. The next part asks what the value would be if the interest was compounded semiannually. You have to do an equation in order to find out what the effective annual interest rate. Through this equation you come out with a value of 10.25% and after the calculator calculations you come out with a future value of $12,271.11, also not meeting the demand for that first year of college. The next part asks what payment will you need in order to get to that $20,000 number and the present value comes to be $3,275.95. Next, the case asks what original payment you would need in order

(Compound annuity) what is the accumulated sum of each of the following streams of payme

1. Assume that at retirement you have accumulated $825,000 in a variable annuity contract. The assumed investment return is 5.5% and your life expectancy is 18 years. What is the hypothetical constant benefit payment?

First we need to get the present value of the annuity for the 1,500 semiannual PMTs at year 14