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Financial Management FIN 5013 – Quiz 5 Chapter 4

Ali Nejadmalayeri October 23, 2007

NAME:
1.

ID: __ __ __ __ __ __ __ __ __ __ __ __ __ __
Janet plans on saving $3,000 a year and expects to earn 8.5%. How much will Janet have at the end of twenty-five years if she earns what she expects?

AFV = $3,000 ×
Enter 25 N Solve for

(1 + .085) 25 − 1 = $3,000 × 78.667792 = $236,003.38 .085 8.5 I/Y PV -3,000 PMT FV 236,003.38

2.

Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $136 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $450,000 a month for this purpose. The firm earns 6% compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations?

$136,000,000 = $450,000 ×

(1 +

ln 2.5111111 = t × ln1.005; t = 184.61 Enter Solve for 3. 6/12 N I/Y 184.61

.06 t ) −1 12 .06 12
Note: t is stated in the number of months.

PV

-450,000 136,000,000 PMT FV

Today, you turn 21. Your birthday wish is that you will be a millionaire by your 40th birthday. In an attempt to reach this goal, you decide to save $25 a day, every day until you turn 40. You open an investment account and deposit your first $25 today. What rate of return must you earn to achieve your goal?

$1,000,000 = $25 ×

(1 +

r (40 − 21)×365 ) −1 r ⎞ ⎛ 365 × ⎜1 + ⎟; r ⎝ 365 ⎠ 365

This can not be solved directly, so it’s easiest to just use the calculator method to get an answer. You can then use the calculator answer as the rate in the formula just to verify that you answer is correct. Enter (40-21)×365 /365 -25BGN 1,000,000 N I/Y PV PMT FV Solve for 15.07 To more decimal places, the answer is 15.0697117%.

4.

Marko, Inc. is considering the purchase of ABC Co. Marko believes that ABC Co. can generate cash flows of...
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