Problem 1

If GHD plastics purchase a new building now for $1.3 million for its corporate
headquarters, what must the building be worth in 10 years? The company expects all
expenditure to earn a rate of return of at least 18% per year.

Given:
Present worth (P) = $1300,000
Interest rate (i) = 18%
Number of years (N) = 10 years
To find:
Future worth (F) =?

i = 18%

8000000
6803986.22
7000000
6000000
5000000
VALUE IN $

4000000
3000000
2000000
1000000
0
0 1 2 3 4 5 6 7 8 9 10
-1000000
-1300000
-2000000

YEARS
PRESENT WORTH FUTURE WORTH

STEP 1: select the default inbuild function for finding the future worth in Excel
software is
=FV(i%,n,,pv).
Where
i is the interest rate,
n is the number of years and
pv is the present worth.
STEP 2: Enter the corresponding values in the syntax, now the syntax becomes
FV(18%,10,,1300000).

STEP 3: By using that syntax, the future worth obtained after 10 years using the
default function is $ 6803986.22

STEP 4: Now the cash flow diagram becomes

i = 18%

8000000
6803986.22
7000000
6000000
5000000
VALUE IN $

4000000
3000000
2000000
1000000
0
0 1 2 3 4 5 6 7 8 9 10
-1000000
-1300000
-2000000

YEARS
PRESENT WORTH FUTURE WORTH

If the new future worth at a rate of 18% per year, after 10 year is $6803986.22
Problem 2.
The amount of money that Diamond systems can spend now for improving
productivity in lieu of spending $30,000 three years from now at an interest rate of
12% per year?

Given:
Future worth(F) = $30,000
Interest rate(i) = 12%
Number of years = 3

To find:
Present worth(P) = ?

i = 12%
40000
30000
30000
20000
VALUE IN $

10000
0
0 1 2 3
-10000
-20000
-21353.41
-30000
YEARS

PRESENT WOTH FUTURE WORTH

STEP 1: Select the default inbuilt function for the present worth in Excel software is
=PV(i%,n,,-fv).
Where
i is the interest rate,
n is the number of years and
fv is the future worth.

STEP 2:Enter the corresponding values in the syntax, now the syntax becomes
PV(12%,3,,30,000)
STEP 3:By using that syntax, the present worth obtained after 3 years is $21353.41

STEP 4: Now the cash flow diagram becomes

i = 12%
40000
30000
30000
20000
VALUE IN $

10000
0
0 1 2 3
-10000
-20000
-21353.41
-30000
YEARS

PRESENT WOTH FUTURE WORTH

If you are interested in buying a piece of real property that could be worth
$30,000 in 3 years at 12%, the present worth that you have to be pay now is
$21,353.41
Problem 3.
A small oil company is planning to replace its Coriolis flow meters with Emerson
Hastelloy flow meters. The replacement process will cost the company $50,000 three
years from now. How much money must the company set aside each year beginning
now in order to have the total amount available immediately after making the last
deposit at the end of the year 4? Assume the company can invest its funds at 15 %
per year?

Given:
Future worth(F) = $50,000
Interest rate(i) = 15%
Number of years(N) = 4

To find:
Annuity(A) = ?

i = 15%
60000
50000
50000
40000
VALUE IN $

30000
20000
10000
0
0 1 2 3 4
-10000
-10013.27
-20000

YEARS

ANNUITY FUTURE WORTH

STEP 1: Select the default inbuild function for the annuity in Excel software is
=PMT(i,n,,fv)
Where
i is the interest rate,
n is the number of years and
fv is the future worth.
STEP 2:Enter the corresponding values in the syntax, now the syntax becomes PMT

(15%,4,50000).

STEP 3:By using that syntax, the future worth obtained after 4 years is $10,013.27

STEP 4: Now the cash flow diagram becomes

i = 15%
60000
50000
50000
40000
VALUE IN $

30000
20000
10000
0
0 1 2 3 4
-10000
-10013.27 -10013.27 -10013.27 -10013.27 -10013.27
-20000

YEARS

ANNUITY FUTURE WORTH

If you are having a future worth of $50,000 with a 15% compound interest,
you will get $10013.27 in 4 years.
Problem 4.
Henry Muller supply Co. sells tamperproof, normal open thermostats Annual cash
flows are shown below. Determine the future worth of the net cash flows at an
interest rate of 10% per year?
Years 1 2 3 4 5 6 7 8
Income$1000 200 200 200 200 200 200 200 200
Cost$ 90 90 90 90 90 90 90 90

Given:
Annuity(A) = $110
Interest rate(i) = 10%
Number of years = 8
To find:
Future worth(F) = ?

i = 10%
1400
1257.95
1200

1000

800
VALUE IN $

600

400

200
0
0
0 1 2 3 4 5 6 7 8
-200 -110 -110 -110 -110 -110 -110 -110 -110

YEARS
ANNUITY FUTURE WORTH

STEP 1: Select the default inbuild function for the future worth in Excel software is
=FV(i%,n,pmt).
Where
i is the interest rate,
n is the number of years and
pmt is the annuity.
STEP 2:Enter the corresponding values in the syntax, now the syntax becomes
PV (10%,8,,110).

STEP 3:By using that syntax, the annuity to be paid for10 years is $3793.40

STEP 4: Now the cash flow diagram becomes

i = 10%
1400
1257.95
1200

1000

800
VALUE IN $

600

400

200
0
0
0 1 2 3 4 5 6 7 8
-200 -110 -110 -110 -110 -110 -110 -110 -110

YEARS
ANNUITY FUTURE WORTH

In order to 8 years with a 10% interest rate, the annuity to be paid is $110
gives the future worth of $1257.95.
Problem 5
The National Highway Traffic Safety Administration raised the average fuel efficiency
standard to 35.5 miles per gallon for cars and light trucks by the year 2016. The rules
will cost consumers an average of $434 extra per vehicle in the 2012 a model year. If
a person purchases a new car in 2012 and keeps it for 5 years, how much must be
saved in fuel costs each year to justify the extra cost? Use an interest rate of 8% per
year?

Given:
Present worth(P) = $434
Interest rate(i) = 8%
Number of years(N) = 5
To find:
Annuity(A) = ?

i = 8%
500
434
400

300
VALUE IN $

200

100
-108.70
0
1 2 3 4 5
-100

-200

YEARS
PRESENT WORTH ANNUITY

STEP 1: Select the default inbuild function for the annuity in Excel software is
=PMT(i,n,pv)
Where
i is the interest rate,
n is the number of years and
pv is the present worth.
STEP 2:Enter the corresponding values in the syntax, now the syntax becomes
PMT(8%,5,434).

STEP 3:By using that syntax, the annuity to be paid for 5 years is $108.70

STEP 4: Now the cash flow diagram becomes

i = 8%
500
434
400

300
VALUE IN $

200

100

0
1 2 3 4 5
-100
-108.70 -108.70 -108.70 -108.70 -108.70
-200

YEARS
PRESENT WORTH ANNUITY

If you amount $434 from a toll with in 5 equal annual at an interest rate of 8%.
You should have to pay $108.70
Problem 6
Rolled ball screws are suitable for high-precision applications such as water jet
cutting. Their total manufacturing cost is expected to decrease be- of increased
productivity, as shown in the table. Determine the equivalent annual cost at an
interest rate of 8% per year.
year 1 2 3 4 5 6 7 8
cost 200 195 190 185 180 175 170 165

Given:
Amount invested: $1000
Annuity(A) = $5
Interest rate(i) = 8%
Number of years(N) = 8
To find:
Present worth(P) = ?

i = 8%
400
200 195 190 185 180 175 170 165
200

0
1 2 3 4 5 6 7 8
VALUE IN $

-200

-400

-600

-800

-1000
-1000
-1200
YEARS
END OF YEARS PRESENT WORTH GRADIENT

STEP 1: Select the default inbuild function for the present worth in Excel software is
=PV(i%,n, pmt).
Where
i is the interest rate,
n is the number of years and
pmt is the annuity.
STEP 2:Enter the corresponding values in the syntax, now the syntax becomes
PV(8%,8,-5,-1000).

STEP 3:By using that syntax, while you paying $5 as annuity with initial investment
of $200, the present worth is to be present now is $1000.

STEP 4: Now the cash flow diagram becomes

i = 8%
400
200 195 190 185 180 175 170 165
200

0
1 2 3 4 5 6 7 8
-200
VALUE IN $

-400

-600

-800

-1000
-1000
-1200
YEARS
END OF YEARS PRESENT WORTH GRADIENT

If you paying $ as annuity with initial investment of $1000, the present worth
is to be present now is $174.48
Problems 7.
Andrew has purchased a new car. He wishes to set aside enough money in a bank
account to pay the maintenance for the first 5 years. It has been estimated that the
maintenance cost of a car is as follows:
Year 1 2 3 4 5
Maintenance Cost $ 120 150 180 210 240

Assume the maintenance costs occur at the end of each year and that the bank pays
5% interest. How much should Andrew deposit in the bank now?
Given:
Interest rate(i) = 5%
Number of years(N) = 5
Gradient(G) = $30
To find:
Present worth(P) = ?

i = 5%
$400
210 240
150 180
$200 120
0
$0
VALUE IN $

0 1 2 3 4 5
($200)
($400)
($600)
($800)
-766.64
($1,000)
YEARS
PRESENT WORTH GRADIENT

STEP 1: Select the default inbuild function for the present worth with uniform
gradient in Excel software is given by
=NPV(i%,value 1:value n).
where
i is the interest rate,
value 1:value n is the sum of uniform gradients upto 5 years.
STEP 2:Enter the corresponding values in the syntax, now the syntax becomes
NPV(5%,C11:C15)

STEP 3:By using that syntax, the present worthfor that gradient amount is $767.0

STEP 4: Now the cash flow diagram becomes

 i = 5%
$400
210 240
150 180
$200 120
0
$0
0 1 2 3 4 5
VALUE IN $

($200)

($400)

($600)

($800) -766.64

($1,000)
YEARS
PRESENT WORTH GRADIENT

You have to pay $767 as a present worth, to get a given cash flow as profit.

Problem 8.

A man buys a car for $3000 with no money down. He pays for the car in 30 equal
monthly payments with interest at 12% per annum, compounded monthly. What is
his monthly loan payment?
Given:
Interest period = 1 months
Payment period = 1 months
Nominal interest rate = 12%
Compounding periods = 30
To find:
Present worth(P) = ?
 ie =?
3500

3000

2500
VALUE IN $

2000

1500

1000

500

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
-500

QUATERS

END OF QUARTER(N) ANNUITY($) = 2000000 PRESENT WORTH

STEP 1: The syntax for finding the effective interest rate in Excel software is
=(1+r/M)c-1
Where
r is the nominal interest rate
M is the number of compounding periods per year,
C is the number of interest period per payment period.

STEP 2: The syntax for finding the present worth in Excel software is
=PV(ie%,n, pmt)
where
ie is the effective interest rate,
n is the number of years and
pmt is the annuity.
STEP 3:By using those syntax, the effective interest rate and present worth is
calculated as 12% and $3000.00

STEP 4: Now the cash flow diagram becomes

ie = 1%
3500
3000
2500
VALUE IN $

2000
1500
1000
500
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
-500

QUATERS

END OF QUARTER(N) ANNUITY($) = 2000000 PRESENT WORTH

The present worth obtained is $3000.00 when you have the annuity paid by
$116.64 million with a effective interest rate of 4%.
Problem 9.
What single amount from 1996 April 1, semiannual cash flows of $1000 that 2010.
Each cash flow is equal to $128,000. The nominal starts with a cash flow on January
1, 1996, and ends initial interest rate is 14% compounded semiannually. with a cash
flow on January 1, 2005? compounding is quarterly

To find:
Interest period = 3 months
Payment period = 6 month
Nominal interest rate = 14%
Compounding periods = 23

Ie = ?
31500

26500

21500
VALUE IN $

16500

11500

6500

1500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
-3500

MONTHS

ANNUITY($) FUTURE WORTH

STEP 1: The syntax for finding the effective interest rate in Excel software is
= (1+r/M)c-1
Where
r is the nominal interest rate
M is the number of compounding periods per year,
C is the number of interest period per payment period.
STEP 2: The syntax for finding the future worth in Excel software is
=FV(i%,n,pmt).
where
i is the interest rate,
n is the number of years and
pmt is the annuity.

STEP 3:By using those syntax, the effective interest rate and present worth is
calculated as 0.4% and $95,450.25
STEP 4: Now the cash flow diagram becomes

Ie = 14.5%
31500

26500

21500
VALUE IN $

16500

11500

6500

1500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
-3500

MONTHS

ANNUITY($) FUTURE WORTH

The future worth obtained is $23,370.60 when you have the annuity paid by
$1000 with a effective interest rate of 14.5%.

Problem 10.
Suppose that $4000 is placed in a bank account at the end of each the 6 months
over the next 10 years. What is the worth at the end of the 10 years when the
interest rate is 9% compounded monthly?
Given:
Compound period = monthly
Payment period = 6 months
Nominal interest rate = 9%
Compounding period = 20
To find:
Future worth(F) = ?
 ie=?
140000 126675.13
120000
VALUE IN $ 100000
80000
60000
40000
20000
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-20000

months

EOY AMOUNT = $4000 FUTURE VALUE

STEP 1: The syntax for finding the effective interest rate in Excel software is
= (1+r/M)c-1
Where
r is the nominal interest rate
M is the number of compounding periods per year,
C is the number of interest period per payment period.

STEP 2: The syntax for finding the future worth in Excel software is
\where i is the interest rate,
n is the number of years and
pmt is the annuity.
STEP 3:By using those syntax, the effective interest rate and present worth is
calculated as 4.59% and $126,675.13

STEP 4: Now the cash flow diagram becomes

ie=4.59%
140000 126675.13
120000
100000
VALUE IN $

80000
60000
40000
20000
0
-20000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

months

EOY AMOUNT = $4000 FUTURE VALUE

The future worth obtained is $126675.13 when you have the annuity paid by
s$4000 with a effective interest rate of 4.59%