QUEENS’ COLLEGE DISTANCE EDUCATION DIVISION

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ASSIGNMENTS FOR FINANCIAL MODELING COURSE

Date: - _____________

Total Weight: - 30 %

Name: - _____________________________________________ ID NO: - ________________

Department: -_______________ Study center: -_____________ Entry year: - __________

Program: DEGREE

This is the only assignment of this course.

This assignment is to be completed and submitted to the office of your center. Do not
attempt the assignment until you are certain that you have understood the units it covers
and have revised your self-test exercises and learning activities, and other necessary
references.

If you have any question about the units and activities, state the item/s clearly on a
separate sheet of paper and attach to your assignment paper.
ASSIGNMENTS FOR FINANCIAL MODELING COURSE

Calculate the future value (FV)

1. If Birr 100 invested in bank today may earn 8% per a year. What is the future value of the
Birr 100 for 1st, 5th and 15th year?

To calculate the future value (FV) of Birr 100 invested in a bank at an interest rate of 8% per
year, we can use the formula:

FV = PV * (1 + r)^n

Where:

PV = Present Value (Birr 100)

r = Interest rate per period (8% or 0.08)

n = Number of periods

For the first year, n = 1:

FV(1st year) = 100 * (1 + 0.08)^1=Birr108

For the fifth year, n = 5:

FV(5th year) = 100 * (1 + 0.08)^5=Birr146.93

For the fifteenth year, n =15:

FV(15th year) = 100 * (1 +0.08)^15=Birr317.21

Calculating these values will give you the future value for each respective time period.
Calculate the internal rate of return

2. The cost of a project is Birr 1000. It has a time horizon of 5 years and the expected year
wise incremental cash flows are;

Year Cash flow

1 Birr, 200
2 300
3 400
4 400
5 500
 Compute IRR of the project. If discount rate of capital is 12%. Should we accept the
project?

Using trial and error method:

Step 1: Set up an equation to solve for IRR.

- The equation is: NPV(cash flows) - Initial Investment=0

-NPV(cashflows)=CashflowYear_1/((IRR+1)^Year_1)+CashflowYear_2/
((IRR+^Year_2)+...+Cash flow Year_n / ((IRR+^Year_n)

Step2: Substitute values into this equation.

- In this case,

NPV(cashflows)=200/((IRR+^Year_200)+300/((IRR+^Year_300)+400/((IRR+^Year_400)+400/
((IRR+^Year_500)

Initial Investment= Birr 1000

Step3: Solve for IRR using trial and error or financial software/tools.

- By trying different values of IRR, you can find the value that makes the equation equal to zero.

If the calculated IRR is greater than the discount rate of capital (12%), then you should accept
the project. Otherwise, if it is less than 12%, you should reject it.
 3. A company has sales of Birr 200,000 and a Gross margin of 18%. Next year the sales are
forecasted to be Birr 230,000. Using the percent of sales method.
 What is the forecasted cost of good sold for next year?

To calculate the forecasted cost of goods sold (COGS) for next year using the percent of
sales method, we need to multiply the forecasted sales by the gross margin percentage.

First, let's calculate the current COGS:

Current Sales = Birr 200,000

Gross Margin = 18% = 0.18

Current COGS = Current Sales * Gross Margin

= Birr 200,000 * 0.18

= Birr 36,000

Next, let's calculate the forecasted COGS for next year:

Forecasted Sales = Birr 230,000

Forecasted COGS = Forecasted Sales * Gross Margin

= Birr 230,000 * 0.18

= Birr 41,400

Therefore, the forecasted cost of goods sold for next year is Birr 41,400.

Now let's move on to calculating the net present value (NPV). However, you haven't
provided any information regarding cash flows or discount rates necessary to calculate
NPV. Please provide more details or clarify your question so that I can assist you further
with calculating NPV.
Calculate the net present value (NPV)

4. XYZ limited, a company that manufactures chairs, is considering the purchase of

machine for Birr 65,000.

The expected cash inflows generated by machine are as follows;

Year Cash flow

1 Birr, 13,000
2 18,000
3 19,000
4 14,000
5 9,000
 After five year period the machine is expected to have a scrap value of Birr, 5000,
 The company required rate of return is 7 %
 Advice XYZ limited on whether or not it should purchase the machine.
 Base your recommendation on the Net Present Value of the Investment.

XYZ limited should purchase the machine as it has a positive Net Present Value (NPV).

To calculate the NPV, we need to discount each cash flow to its present value using the required
rate of return. The formula for calculating present value is:

PV = CF / (1 + r)^n

Where PV is the present value, CF is the cash flow, r is the required rate of return, and n is the
number of years.

Calculating the present values for each cash flow:

Year 1: PV = 13,000 / (1 + 0.07)^1 = Birr 12,149.53

Year 2: PV = 18,000 / (1 + 0.07)^2 = Birr 15,721.89

Year 3: PV = 19,000 / (1 + 0.07)^3 = Birr 15,509.66

Year 4: PV =14 ,000 / (1 +0 .07 )^4= Birr11680.532

Year5 :PV=9 ,000 /(l+O .O7 )^5=Birr6416.875

Scrap Value :PV=5 ,000/(l+O.O7 )^5=Birr3564.93

Next step is to sum up all these present values:

Total Present Value(PV)=65043.417

Finally we subtract the initial cost of purchasing machine from total present value to get Net
Present Value(NPV):

NPV= Total PresentValue - Initial Cost

NPV=65043.417-Birr65,000

NPV= Birr43.417

Since the NPV is postive (Birr43.417), it indicates that the investment would generate enough
returns to cover the initial cost and meet the required rate of return. Therefore, XYZ limited
should purchase the machine.
Calculate the present Value (PV)

5. Calculate the present Value (PV)

A. If Birr 100 is to be received after 1 year, what is present value of birr 100 today?
B. If Birr 100 is to be received after 5 year, what is present value of birr 100 today?
C. If Birr 100 is to be received after 15 year, what is present value of birr 100 today?

Note: Discount rate is 8% per year.

Calculating Present Value (PV):

A. PV = 100 / (1 + 0.08)^1 = Birr 92.59

B. PV = 100 / (1 + 0.08)^5= Birr 92.59

C PV = 100 / (1 + 0.08)^15=31.51