2.

Your firm has the option if making an investment in a new software that will cost $130,000 today and it is estimated to pro

Year Savings E. PV= FV(1+r)^n

1 $35,000 PV= 35,000(1+.09)^-1 32,110.09
2 $50,000 PV= 50,000(1+.09)^-2 42,083.99
3 $45,000 PV= 45,000(1+.09)^-3 34,748.25 Total = 136,401.93
4 $25,000 PV= 25,000(1+.09)^-4 17,710.63
5 $15,000 PV= 15,000(1+.09)^-5 9,748.97

Should the firm make its investment if it requires a minimum annual return of 9% on all investments?
Yes, because it has more gain that what it was invested.
ay and it is estimated to provide the savings shown in the following table over its 5-years life.
5. Joan Messineo borrowed $15,000 at 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three
a) Calculate the annual, end-of-year loan payment
b) Prepare loan amortization schedule showing the interest and principal breakdown of eash of the three loan payments.
c) Explain why the interest portion of each payment declines with the passage of time.

a)
CF= (PV . R) (15, 000) 0.14 $6,460.97
1- 1/ (1+r)n 1 - 1
(1+ 0.14) 3

b)
EOY BOY Loan Payment Interest Principal EOY Principal
1 15000 $6,460.97 2100 4360.97 10,639.03
2 12639.03 $6,460.97 1489.46 4971.51 5667.52
3 5667.52 $6,460.97 793.45 5667.52 0

c)
Because is calulated according the amount of the beginning of the year, if the amount decrease, the interese will decrease as w
an is amortized into three equal, annual, end-of-year payments.

three loan payments.

nterese will decrease as well.