Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 67 views

    Corporate Finance Chapter 6

    Uploaded by

    Razan Eid
    The document contains examples of calculations related to financial concepts such as present value, future value, annuities, loans, and interest rates. Various formulas are provided and applied to scenarios involving cash flows, investments, home and car loans over periods of time with different interest rates.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Corporate Finance Chapter 6

    Uploaded by

    Razan Eid
    67 views7 pages
    The document contains examples of calculations related to financial concepts such as present value, future value, annuities, loans, and interest rates. Various formulas are provided and applied to scenarios involving cash flows, investments, home and car loans over periods of time with different interest rates.

    Original Description:

    Corporate Finance Chapter 6

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document contains examples of calculations related to financial concepts such as present value, future value, annuities, loans, and interest rates. Various formulas are provided and applied to scenarios involving cash flows, investments, home and car loans over periods of time with different interest rates.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    67 views7 pages

    Corporate Finance Chapter 6

    Uploaded by

    Razan Eid
    The document contains examples of calculations related to financial concepts such as present value, future value, annuities, loans, and interest rates. Various formulas are provided and applied to scenarios involving cash flows, investments, home and car loans over periods of time with different interest rates.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 7

    6.

    1- Future Value of Cash Flows = 18592*(1+.102)^3 + 19511*(1+.102)^2 + 15545*(1+.102)^1

    + 15942 = 81648

    6.2-

    Year Cash flow FVF for years FVF @ 7.65% Future Value
    1 2350 4 1.3429 3155.91
    2 2725 3 1.2475 3399.45
    3 3128 2 1.1589 3624.50
    4 3366 1 1.0765 3623.50
    5 3695 0 1.0000 3695.00
    Future value of total investment= 17498.74 so approximately $17,500

    6.3- We use the formula:  

    A=P(1+r/100)^n

    where

    A=future value

    P=present value  

    r=rate of interest

    n=time period.

    A=570*(1.065)^4+730*(1.065)^3+730*(1.065)^2+830*(1.065)

    Which is equal to

    =$3327.02(Approx)

    6.4- The present value is computed as shown below:

    = Future value / (1 + r)n

    = $ 10,450 / 1.10875 + $ 8,500 / 1.108752 + $ 9,675 / 1.108753 + $ 12,500 / 1.108754 + $

    11,635 / 1.108755

    = $ 38,652.76
    6.5- PV = (1225/1.075) +(1350/1.0752) + (1460/1.0753) + (1615/1.0754) + (1560/1.0755) =

    5778.92

    6.7- Here P=$750

    rate of interest=8%

    time period,n=12 years

    Hence present value=P[(1-(1+r)^-n]/r

    =$750 [1-(1.08)^-12]/0.08

    =$750*7.536

    =$5652 (approx)

    6.8- PMT =22500

    Number of years =5

    Rate =15%

    PV using excel formula =PV(15%,5,-225000) =754234.90

    6.9- Formula for future value of ordinary annuity is:

    FV = P x [(1+r) n- 1 /r]

    P = periodic cash flow = $ 25,000

    r = Rate of interest = 11.4 % or 0.114

    n = No. of periods = 7

    Substituting all the values in above formula, we get FV as:

    FV = $ 25,000 x [(1+0.114)7 – 1/0.114]

         = $ 25,000 x [(1.114)7 – 1/0.114]

        = $ 25,000 x [(2.129101– 1/0.114]

        = $ 25,000 x (1.129101/0.114)


        = $ 25,000 x 9.904398

        = $ 247,609.95

    Robert will have $ 247,609.95 at the end of seven years.

    6.10- N = 40

    PMT = 3000

    PV = 0

    rate = 9.75%

    use a financial calculator or use FV functioon in Excel

    FV = 1,240,676.41

    6.11- annual investment =PMT=$4,499

    rate of return i=11.26%

    number of payments n=40

    Future value of investment =FVA40

    FVAn =PMT[(1+i)n-1/i]

    FVA40 =4499[1.112640-1/0.1126]

    =$2,811,980.74

    6.12- If annual savings be M, then

    $5,000 = M x FVIFA (10.3%, 3 years)

    FVIFA (r%, N) = [(1 + r)N - 1] / r

    FVIFA(10.3%, 3) = [(1.103)3 - 1] / 0.103 = [1.3419 - 1] / 0.103 = 0.3419 / 0.103 = 3.3196

    So,

    M = $5,000 / FVIFA (10.3%, 3) = $5,000 / 3.3196 = $1,506.20

    6.13- Present value of annuity due=(1+rate)*Annuity[1-(1+interest rate)^-time period]/rate


    23500=1.084*Annuity[1-(1.084)^-7]/0.084

    23500=Annuity*5.56731417

    Annuity=23500/5.56731417

    =$4221.07(Approx).

    6.14- PV of Perpetuity = Perpetual Annual Cash Flow / Required Return

    = $10,000 / 0.065 = $153,846.15

    6.16- The effective annual rate is calculated as:-

    =(1+APR/n)^n-1

    =(1+4.9%/12)^12-1

    =5.01%

    6.17- Effective annual rate=(1+.092/365)^365-1=9.64%

    6.18- Present value of this growing perpetuity=Payment for year 1/(Discount rate-Growth rate)

    =20,000/(0.09-0.034)

    which is equal to

    =$357142.86(Approx).

    6.19- Future Value = 331000*(1+.0675)^6 + 616450*(1+.0675)^5 + 212775*(1+.0675)^4 +

    818400*(1+.0675)^3 + 1239644*(1+.0675)^2 + 1617848*(1+.0675)^1 = 5755936.393

    6.20- We use the formula:  

    A=P(1+r/100)^n  

    where   

    A=future value  

    P=present value      


    r=rate of interest

    n=time period.

    A=2,090*(1.1325)^6+2,090*(1.1325)^5+2,090*(1.1325)^4+3650*(1.1325)^3+3725*(1.1325)^2

    +3875*(1.1325)+4000  

    =$30208.35(Approx)

    6.21- PV = 427542 / 1.119 + 287840 / (1.119)2 +597757 / (1.119)3+ 261658 / (1.119)^4+ ....

    So PV= $1934234.32

    6.24- Amount saved by Jeremy Denham till 8 years

    If he saves $500 for every year= 5,000x8= $40,000

    10
    Amount earned by Jeremy for 6 months by investing in a mutual fund = 40,000x = $4,000
    100

    Amount earned by Jeremy till 1 year= 4000x2= $8,000

    Amount earned by Jeremy till 8 years= 8000x8= $64,000

    Total amount earned by him till 8 years= 64,000+40,000= $104,000

    Total amount saved by Jeremy have buying a house= 104,000-40,000= $64,000

    6.26- PMT= $89,729.45 at the beginning of each year

    Annual payment = PMT = $89,729.45

    Type of annuity= Annuity due

    Number of payments= n = 20

    Required rate of return= 7.25%

    Present value of investment=PVA(year 20)

    6.36- Time horizon t = 35 years

    Value of IRA after 35 years = 6950 * (1 + 0.083) ^ 35 = $113,235.03


    Value of money market acc after 35 years = 5000 * (1 + 0.0525) ^ 35 = $29,973.93

    Total value of IRA and MMA after 35 years = $143,208.96

    Target = $1,000,000

    Amount to be accumulated in mutual fund = $1,000,000 - $143,208.96 = $856,791.04

    Future value of annuity S is given by S = R * ((1 + r) ^ t - 1) / r

    Where R is the annual payment, r = annual interest rate, t = number of years.

    In this case S = 856,791.04, R =?, r = 0.09, t = 35.

    Solving for R we get R = $3,971.95

    6.40- Cost of new car = $129,482

    Down payment = $20,000

    Loan amount = $129,482 –$20,000 = $109,482

    Interest rate on loan = i= 5.75%

    Term of loan = n= 5 years

    Frequency of payment = m= 12

    Monthly payment on loan = PMT

    1
    PVA(year n)= PMT x( 1- (1+ i)n )
    i

    109,482
    PMT = = $ 2,103.89
    52.0379

    6.41- Home loan amount = $237,000

    Interest rate on loan = i= 6.375%


    Term of loan = n= 15 years

    Frequency of payment = m= 12

    Monthly payment on loan = PMT

    1
    PVA(year n)= PMT x( 1- (1+ i)n )
    i

    237,000
    PMT = = $ 2,048.27
    115.5072

    You might also like