Rahma Putri Hapsari
29120450
YP64C
Developing Financial Insights: Using a Future Value (FV) and a Present
Value (PV) Approach
Answers:
1. Present Value = $15.000
Expected Trip Cost = $25.000
Interest Rate = 8% 0.08
Number of Years =5
What is the future value for the next 5 years?
a. FP = $15,000 x (1 + 0.08)5
FP = $22,039.92
Total money to be collected $22,039.92 - $25,000 = $ -2,960.08
In conclusion, I will not have enough money when I turn 40. I need $ 2,960.08 to
reach the target.
b. Saving annually $500
Annual interest rate 8% for 5 years = 6.336 (exhibit 3)
FP = %15,000 x (1 + 0.08)5 + ($500 x 6.336)
FP = $25,207.92
Total money to be collected $25,207.92 - $25,000 = $207.92
In conclusion, I will have surplus $207.92 and go vacation.
2. Future Value = $50,000,000
Interest rate = 18%
Number of Years =4
a. What lump-sum dollar amount would you be willing to accept today instead of the
$50 million in 4 years?
PV = $50,000,000 / (1 + 0.18)4
PV = $25,789,443.76
b. What four yearly receipts, starting a year from now, would you be willing to accept?
Annual interest rate 18% for 4 years = 2.690 (exhibit 4)
PV ÷ 2.690 = $9,587,153.81
3. Interest Rate = 6%
Number of years = 12
Project Annual Saving = $40,000
Annual interest rate 6% for 12 years = 8.284 (exhibit 4)
Maximum price to be installed $40,000 x 8.284 = $335,360.00
a. Redo your calculation using a 10-year time period and $48,000 in annual savings
Annual interest rate 6% for 10 years = 7.360 (exhibit 4)
Maximum price to be installed $48,000 x 7.360 = $353,280.00
b. Redo your initial calculation one more time using $50,000 in annual savings for the
first six years and $30,000 in annual savings for the next six years.
Annual interest rate 6% for 6 years = 4.917 (exhibit 4)
Maximum price to be installed ($50,000 x 4.917) + ($30,000 x (8.284 - 4.917))
= $349,860.00
4. Equipment cost = $45,000
Increase sales (PMT) = $8,000
Number of Years =8
Interest Rate = 8%
Assuming a required rate of return of 8%, should you pursue this opportunity? Why
and why not?
a. You are part of an income-tax-exempt enterprise
Annual interest rate 8% for 8 years = 5.747 (exhibit 4)
$ -45,000 + ($8,000 x 5.747) = $976
In conclusion, we should buy the equipment because it will give profit for the
company for about $976.
b. Subject to a 40% corporate income tax rate, and the straight line, depreciable life of
equipment is 5 years.
Time 0 1 2 3 4 5 6 7 8
Sales Increase $ (45,000.00) $ 4,800.00 $ 4,800.00 $ 4,800.00 $ 4,800.00 $ 4,800.00 $ 4,800.00 $ 4,800.00 $ 4,800.00
Depreciation Cost $ 3,600.00 $ 3,600.00 $ 3,600.00 $ 3,600.00 $ 3,600.00
Tax $ (45,000.00) $ 8,400.00 $ 8,400.00 $ 8,400.00 $ 8,400.00 $ 8,400.00 $ 4,800.00 $ 4,800.00 $ 4,800.00
Profit Increase $ (45,000.00) $ 7,777.78 $ 7,201.65 $ 6,668.19 $ 6,174.25 $ 5,716.90 $ 3,024.81 $ 2,800.75 $ 2,593.29
PV Cost $ (3,042.38)
In conclusion, we should not have to buy the equipment because I causes loss for
the company
5. Half-share purchase = $6,000,000
Elimination of Annual Operating Cost = $220,000
Operating Cost = $100,000
Number of Years = 10
Rate Interest = 8%
Tax Rate = 40%
Annual interest rate 8% for 10 years = 6.710 (exhibit 4)
Does this endeavor present a positive or negative NPV? If positive, how much value
is being created for the company through the purchase of this asset? If negative, what
additional annual cash flows would be needed for the NPV to equal zero? To what
phenomena might those additional positive cash flows be ascribable?
Year 0 1 2 3 4 5 6 7 8 9 10
Upfront Investment $ (6,000,000.00)
Elemination of annual perating cost $ 220,000.00 $ 220,000.00 $ 220,000.00 $ 220,000.00 $ 220,000.00 $ 220,000.00 $ 220,000.00 $ 220,000.00 $ 220,000.00 $ 220,000.00
Operating Cost $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00) $ (100,000.00)
After-Tax Cash Inflow Using Investment $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00
Undiscounted After-Tax $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00 $ 72,000.00
Discounted $ (6,000,000.00) $ 66,666.67 $ 61,728.40 $ 57,155.92 $ 52,922.15 $ 49,001.99 $ 45,372.21 $ 42,011.31 $ 38,899.36 $ 36,017.93 $ 33,349.93
NVP $ (5,516,874.14)
NVP $ -5,516,874.14
In conclusion, to reach NVP to equal zero, we need additional $ 5,516,874.14
6. Operating Cost = $100,000
Investment = $520,000
Annual Rate $520,000 ÷ $100,000 = 5.2
Find the rate from exhibit 4
Annual interest rate 4% for 6 years = 5.242
Annual interest rate 14% for 10 years = 5.216
