Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity of $100 per year for 3 years, and (3) an uneven cash flow stream of −$50, $100, $75, and $50 at the end of Years 0 through 3. (1) What’s the future value of an initial $100 after 3 years if it is invested in an account paying 10% annual interest? (2) What’s the present value of $100 to be received in 3 years if the appropriate interest rate is 10%? We sometimes need to find out how long it will take a sum of money (or something else, such as earnings, population, or prices) to grow to some specified amount. For example, if a company’s sales are growing at a rate of 20% per year, how long will it take sales to double? If you want an investment to double in 3 years, what interest rate must it earn? (1) What’s the future value of a 3-year ordinary annuity of $100 if the appropriate interest rate is 10%? (2) What’s the present value of the annuity? (3) What would the future and present values be if the annuity were an annuity due?

*Answer: Time line is a graphical tool that determines the value of cash flows over a period of…

Answered: Assume that you are nearing graduation…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions.

Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity of $100 per year for 3 years, and (3) an uneven cash flow stream of −$50, $100, $75, and $50 at the end of Years 0 through 3.

(1) What’s the future value of an initial $100 after 3 years if it is invested in an account paying 10% annual interest?

(2) What’s the present value of $100 to be received in 3 years if the appropriate interest rate is 10%?

We sometimes need to find out how long it will take a sum of money (or something else, such as earnings, population, or prices) to grow to some specified amount. For example, if a company’s sales are growing at a rate of 20% per year, how long will it take sales to double?

If you want an investment to double in 3 years, what interest rate must it earn?

(1) What’s the future value of a 3-year ordinary annuity of $100 if the appropriate interest rate is 10%?

(2) What’s the present value of the annuity?

(3) What would the future and present values be if the annuity were an annuity due?

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