1.How much will $1000 deposit in savings account earning a compound annual interest rate of 6% be worth at the end of the following number years? a) 3 years$1,191
b) 5 years$1,338
c) 10 years$1,791

2. If you require a 9% return on your investment which would you prefer? a) $5,000 todayPV = $5,000
b) $15,000 five years from todayPV = $9,748.50
c) $1,000 per year for 15 yearsPV = $8061
Select option b

3.The Lancer Leasing Company has agreed to lease a hydraulic trencher to the Chavez Excavation Company for $20,000 per year over the next 8 years. Lease payments are to be made at the beginning of each year. Assuming that Lancer leasing company requires a 9% rate of return, what is the PV of payments?

PV = $120,663

4.The Mutual Assurance and life Company is offering an insurance policy under either of the following two terms: a) Make a series of 12 payments of $1,200 at the beginning of each of the next 12 years (first payment being made today) b) Make a single lump-sum payment today of 10,000 and receive coverage for the next 12 years If you had investment opportunities offering an 8% annual return, which alternative would you prefer?

a) PV = $9,766.66
b) PV = $10,000
Select option a

5.A leading broker has advertised money multiplier certificates that will triple your money in 9 years; that is if you buy one for $333.33 today, it will pay you $1,000 at the end of 9 years? What rate of return will you earn on this money multiplier certificates?

i = 13.073%

6.Given two following mutually exclusive alternatives:
a) Alternative A: initial cost $100, annual benefits $60, useful life 7 years b) Alternative B: initial cost $60, annual benefits $20, useful life 7 years Which alternative is preferable if i = 12%?

...Time Value of Money Practice Problems − Solutions
Dr. Stanley D. Longhofer 1) Jim makes a deposit of $12,000 in a bank account. The deposit is to earn interest annually at the rate of 9 percent for seven years. a) How much will Jim have on deposit at the end of seven years? P/Y = 1, N = 7, I = 9, PV = 12,000, PMT = 0 ⇒ FV = $21,936.47 b) Assuming the deposit earned a 9 percent rate of interest compounded quarterly, how much would he have at the end of seven years? P/Y = 4, N = 7 × 4 = 28 ⇒ FV = $22,374.54 c) In comparing parts (a) and (b), what are the respective effective annual yields? Which alternative is better? Because interest in compounded annual in part (a), the effective annual rate is the same as the nominal rate: EARA = 9%. In part (b), EARB = (1 + i/m)m – 1 = 1.02254 – 1 = 9.31%. This can be also solved using the TI BAII+ using the Interest Conversion worksheet. Simply press [2nd] [I Conv] (the second function of the 2 key) to bring up this worksheet. When the screen says NOM = press [9] and [Enter]. Then arrow up and make sure that [C/Y] reads 4 compounding periods per year; if not, press [4] and [Enter]. Finally arrow up to the EFF screen and press [CPT] to compute the effective annual rate. Alternative (b) is preferred because it compounds your interest more frequently. Thus you get to earn “interest on your interest” sooner. 2) John is considering the purchase of a lot. He can buy the lot today and expects the price to rise to $15,000 at the...

...payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the
following statements is correct given these two investment options?
a. Both options are of equal value given that they both provide $20,000 of income.
b. Option A is the better choice of the two given any positive rate of return.
c. Option B has a higher presentvalue than option A given a positive rate of return.
d. Option B has a lower future value at year 5 than option A given a zero rate of return.
e. Option A is preferable because it is an annuity due.
a 8. You are considering two projects with the following cash flows:
Project A Project B
Year 1 $2,500 $4,000
Year 2 3,000 3,500
Year 3 3,500 3,000
Year 4 4,000 2,500
Which of the following statements are true concerning these two projects?
I. Both projects have the same future value at the end of year 4, given a positive rate of return.
II. Both projects have the same future value given a zero rate of return.
III. Both projects have the same future value at any point in time, given a positive rate of
return.
IV. Project A has a higher future value than project B, given a positive rate of return.
a. II only
b. IV only
c. I and III only
d. II and IV only
e. I, II, and III only
a 9. You...

...these two currencies is 1 euro =1.3118 dollars so in order to make easier the case we will use 1.31 to round it up.
The politics of the Group related to the management of the risk of change foresee, as a rule, the coverage of the future commercial flows that you/they will have bookkeeping demonstration within 12 months and of the orders acquired (or committed in progress) to put aside from their expiration. It is reasonable to believe that the relative effect of coverage suspended in the Reserve of cash flow hedge will primarily be in relief to economic account in the following exercise.
The Group is exposed to consequential risks by the variation of the rates of change, that you/they can influence on its economic result and on the value of the clean patrimony. Particularly:
Whereas the societies of the Group sustain costs denominated in different currencies by those of denomination of the respective proceeds, the variation of the rates of change can influence the Result operational of such societies. In 2012, the general amount of the commercial flows directly statements to the risk of change you/he/she has been equivalent to 10% around of the billing. Gives the last budget of Fiat the total billing of 83 billion of euro therefore the figure that we will go to analyze is equal to 830 million of Euro.
CASE STUDY
The Group, which operates in numerous markets worldwide, is naturally exposed to market risks stemming from fluctuations in currency and...

...Presentvalue is where the value on a set date of a future payment is discounted to reflect the time value of money and other factors. This can also apply to a series of future payments. Presentvalue calculations are commonly utilized in business and economics to provide a way to compare cash flows at different times. Presentvalue can be described as the current worth of a future sum of money or stream of cash flows given a specified rate of return. (http://www.getobjects.com) Future cash flows are discounted at the discount rate. The higher the discounted rate, the lower the presentvalue of the future cash flows. Determining what the appropriate discount rate is, is important to correctly place value future cash flows.
The PresentValue of an Ordinary Annuity is the value of a stream of promised or expected future payments that have been discounted to a single equivalent value today. It is extremely useful for comparing two separate cash flows that differ in some way.
PresentValue of an Ordinary Annuity can also be looked at as the amount you have to invest today at a specific interest rate so that when you withdraw an equal amount each period, the original principal and all accumulated interest will be completely used at the end...

.... To find the PVA, we use the equation:
PVA = C({1 – [1/(1 + r)]t } / r )
PVA = $60,000{[1 – (1/1.0825)9 ] / .0825}
PVA = $370,947.84
The presentvalue of the revenue is greater than the cost, so your company can afford the equipment.
7. Here we need to find the FVA. The equation to find the FVA is:
FVA = C{[(1 + r)t – 1] / r}
FVA for 20 years = $3,000[(1.08520 – 1) / .085]
FVA for 20 years = $145,131.04
FVA for 40 years = $3,000[(1.08540 – 1) / .085]
FVA for 40 years = $887,047.61
Notice that doubling the number of periods does not double the FVA.
8. Here we have the FVA, the length of the annuity, and the interest rate. We want to calculate the annuity payment. Using the FVA equation:
FVA = C{[(1 + r)t – 1] / r}
$40,000 = $C[(1.05257 – 1) / .0525]
We can now solve this equation for the annuity payment. Doing so, we get:
C = $40,000 / 8.204106
C = $4,875.55
9. Here we have the PVA, the length of the annuity, and the interest rate. We want to calculate the annuity payment. Using the PVA equation:
PVA = C({1 – [1/(1 + r)]t } / r)
$30,000 = C{[1 – (1/1.09)7 ] / .09}
We can now solve this equation for the annuity payment. Doing so, we get:
C = $30,000 / 5.03295
C = $5,960.72
10. This cash flow is a perpetuity. To find the PV of a perpetuity, we use the equation:
PV = C / r
PV = $20,000 / .08 = $250,000.00
11. Here we need to find the interest rate that...

...situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal.
a. 0 Moral hazard
b. 0 Zero-sum game
c. 0 Adverse selection
d. 0 The behavioral principle
Objective: Discuss 12 principles of foundational corporate finance.
3. Which of the following correctly completes the next sentence? The value of any asset is the presentvalue of all future
a. 0 profits it is expected to provide
b. 0 revenue it is expected to provide
c. 0 net working capital it is expected to provide
d. 0 cash flows it is expected to provide
Objective: Compare and contrast the market value of an asset or liability from the book value.
4. Original maturity refers to
a. 0 a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time
b. 0 the price for which something could be bought or sold in a reasonable length of time, where reasonable length of time is defined in terms of an item’s liquidity
c. 0 the length of an asset’s life when it is issued
d. 0 the net amount, or net book value, for something shown in quarterly accounting statements
Week Two: Business Valuation
Objective: Apply the capital-asset pricing model to calculate a business’s required return.
5. The principle of __________...

...PresentValue is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate, and the higher the discount rate, the lower the presentvalue of the future cash flows. Determining the appropriate discount rate is the key to properly valuing future cash flows, whether they be earnings or obligations.
PresentValue of annuity is a series of equal payments or receipts that occur at evenly spaced intervals. Leases and rental payments are examples. The payments or receipts occur at the end of each period for an ordinary annuity while they occur at the beginning of each period; For an annuity due.
PVoa = PMT [(1 - (1 / (1 + i)n)) / i]
Future Value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. There are two ways to calculate FV: For an asset with simple annual interest: = Original Investment x (1+ interest rate *number of years)) 2) For an asset with interest compounded annually: = Original Investment x ((1+interest rate)^number of years)
Future value of annuity is the value of a group of payments at a specified date in the future. These payments are known as an annuity, or set of cash flows. The future value of an annuity measures how much...

...Time Value of Money
The time value of money (TVM) or, discounted presentvalue, is one of the basic concepts of finance and was developed by Leonardo Fibonacci in 1202. The time value of money (TVM) is based on the premise that one will prefer to receive a certain amount of money today than the same amount in the future, all else equal. As a result, when one deposits money in a bank account, one demands (and earns) interest. Money received today is more valuable than money received in the future by the amount of interest we can earn with the money. If $90 today will accumulate to $100 a year from now, then the presentvalue of $100 to be received one year from now is $90.
To fully understand time value of money one must first understand a few terms. Presentvalue and future value are totally different. They also have their disadvantages and advantages; it just depends on how they are used. Of course, presentvalue is what you have right now at this present time. While future value is the amount of money you will have at a given time in the future. Future value has a tendency to be deep; meaning that who knows the future. Interest rates fluctuate everyday; so one can be losing while the other is gaining. Money is known to be worth more now in...