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Business Finance
1. Calculate the present value of $90,000 to be received 14 years from now it the decision makers’ opportunity cost is 10 percent.
2. Find the present value at 9 percent of each of the following five-year cash inflow streams. Assume that cash inflows occur at the end of the year.
Year A B
1 $8000 $10000
2 9000 10000
3 10000 10000
4 11000 10000
5 12000 10000
3. If an individual wishes to accumulate $15,000 in six years by making equal annual end-of-year deposits into an accounting paying 7 percent internet, how large should the deposits be?
4.A lender wishes to determine the size of the equal annual end-of- yeat payments necessary to fully amortize a $4000 loan at 11 percent interest over three years. How large should the payments be?
5. Find the compound annual growth rate associated with the following cash flows
Year Cash Flow
1995 295
1994 275
1993 260
1992 227
1991 209
1990 200
6. As a financial institution savings manager, you want to show your customers what IRA (Individual Retirement Account) could earn by age65, with equal $2000 at the end of each year deposit at 8% and 12% interest rate, present your calculations and then complete the table below with your results
Use Financial Table
Age Total Deposited Dollars Accumulated at
Started by age 65 8% 12%
1. Dorman Automobiles, Inc. is attempting to evaluate the desirability of two prospective projects. The initial investment required along with the incremental profits expected in each case are presented below:
Initial investment Project A Project B
$500,000 $850,000
Year Profits after taxes
1 130,000 170,000
2 120,000 170,000
3 100,000 170,000
4 80,000 170,000
5 50,000 170,000
(a) If the amount of the initial investment for both project A and project B equals their depreciable values, calculate the cash inflows associated with each alternative if the firm uses straight-line depreciation. (no salvage value)
II. Stanley company is contemplating an investment in either of the following two projects
Project A Project B
Initial Investment 25,000 25,000
Year Cash Inflows
1 7,000 12,000
2 7,000 9,000
3 7,000 6,000
4 7,000 3,000
5 7,000 3,000
Assuming the firm’s cost of capital is 7 percent for each project,
(a) Calculate the payback period and comment on (1) the acceptance criterion, (2) the pros and cons of the technique
(b) Find the new present value (NPV)
(c) Calculate benefit- cost ratio (B/C)
(d) Find the internal rate of return (IRR) rounded to the nearest 1 percent
(e) Using the results of part (b), (c), and (d) above, comment on the projects with respect to their (1) acceptability and (2) ranking
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发表于 2010-8-6 12:07
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