* $5,000 compounded annually at 6% for 5 years $6,691.13 * $5,000 compounded semiannually at 6% for 5 years $6719.58 * $5,000 compounded quarterly at 6% for 5 years $6734.28 * $5,000 compounded annually at 6% for 6 years $7092.60
Answer the following: The conclusion that can be drawn about the frequency of compounding interest is that the more frequency the better. The conclusion that can be drawn about the length of time an amount is compounding is the same the more or longer the better. It just keeps adding up.
Calculate the present value of the following:
* $7,000 in 5 years at an annual discount rate of 6% $5230.81
* $7,000 in 5 years at a semiannual discount rate of 6% $5208.66
* $7,000 in 5 years at a quarterly discount rate of 6% $5197.30
* $7,000 in 6 years at an annual discount rate of 6% $4934.73
Answer the following: The conclusion that can be drawn about the frequency of the discounting interval is that the more frequent discounting interval more money that is lost. The conclusion that can be drawn about the length of time until the receipt of that value is the same a loss.
Answer the following: I would chose contract A because they are both paying the same amount for the same amount of time and have the same discount rate. If the money is left in a little longer it might build up more. So I would wait another year to receive the money and let it build. Assume you have a choice between two annuity contracts.
...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 valuefuture 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...
...Ryan Nguyen
04/13/2013
Dr. Choi
Finance 3300
Exam 3 Short Essay.
Net Presentvalue is the difference between an investment’s market value and its cost. For an example, you invest 100 dollars (Cost) into a lemonade stand but you receive 50 dollars (Market Value) of cash inflow. Another would be you buy a house for 50,000(Cost) But you sell it for 75,000(Market Value). Your net presentvalue An Investment should be accepted if the net presentvalue is positive and it should be rejected if the net presentvalue is negative. Net presentvalue uses the discounted cash flow of valuation, which is the process of valuing an investment by discounting future cash flows. Comparison to another rule, which is called the Internal rate of return, uses the discount rate that makes the NPV of an Investment zero. IRR finds the single rate that summaries the rate of return of a project. We only depend on cash flow of a particular investment not the rates offered elsewhere. For an example, you let your brother burrow 100 dollars but he pays you back 125 dollars. You would ask what is the return on this investment, which is 25% or 1.25 dollars back for every 1 dollar invested. This investment would be only valid if the required return is less than 25% because anything more would fall...
...annual interest rate is 5.5 percent. How much money must you deposit in account each year to fund your children’s education? Your deposits begin one year from today. You will make your last deposit when your oldest child enters college. Assume four years of college
Solution:
Cost of 1 year at university = 23,000
N=4
I=5.5%
PMT=23,000
CPT PV = 80,618.45
For the first child the PV = 80,618.45/ (1.055) ^14 = $38,097.81
For the second child the PV = 80,618.45/ (1.055) ^16 = $34,229.07
Therefore the total cost today of your children’s college expense will be the addition of the 2
= $72,326.88
This is the presentvalue of my annual savings, which are an annuity, so to get the amount I am supposed to save each year would be:
PV=72,326.88
N=15
I=5.5
CPT PMT = 7,205.6
57. Calculating Annuity Values:
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $25,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $350,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $750,000 to his nephew Frodo. He can afford to save $2,100 per month for the next 10 years. If he can earn an 11 percent EAR before...
...
Net presentValue, Mergers and acquisitions
Abstract
Main objective of undertaking this to report was learn about NPV presentvalue (NPV) method to make capital budgeting decision(Google NEW Project) and success factors involved in mergers and acquisitions(GoogleGroupon Case).
Answers to the Assignments
Part I: Google should go ahead with the new project.
PartII: Google’s acquisition of Groupon would have been win win situation for both corporations
Now I will discuss both parts in detail below.
Part I: Capital Budgeting
Capital budgeting is the process of making longterm planning decision relating to planning for capital assets as to whether or not money should be invested in the long term projects (en.wikipedia.com). Decisions like obtaining new facilities or purchase or new machinery to expand their business. It involves a financial analysis of the various alternative proposals regarding a capital expenditure and to select the best out of the several alternatives.
There are several methods of evaluating investment projects like NPV, IRR, Payback period and Profitability Index (www.investopedia.com). I will be discussing NPV and IRR for this assignment.
Net PresentValue (NPV)
NPV is a method which uses discounted cash flow techniques. Net PresentValue is equal to the difference between the Present...
...WHY IS THE CONCEPT OF PRESENTVALUE SO IMPORTANT FOR CORPORATE FINANCE?
The importance of concept of presentvalue to the world of corporate finance is that presentvalue calculations are widely used in business and economics to provide a means to compare cash flows at different times. Present Value’s definition and simplistic formula used for normal purchases, the concept’s importance to corporate finance and why presentvalue is the very first topic taught in finance classes explain that presentvalue is an essential knowledgeable tool to ensure we make the best decisions with our money.
However, first, What Does PresentValue  PV Mean? 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 are earnings or obligations.” Through the definition itself, an importance to corporate finance is explained as well as why professors begin a finance course with a basis explanation...
...
FINC5001 Capital Market and Corporate Finance

Workshop 5 – Capital Budgeting II
1. Basic Concepts Review
a) In applying Net PresentValue, what factors do we include, and what factors do we ignore?
Use cash flows not accounting income
Ignore
* sunk costs
* financing costs
Include
* opportunity costs
* side effects
* working capital
* taxation
* inflation
2. Practice Questions
a) After spending $3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of $6 million. This investment will be depreciated straightline over five years to a value of zero, but, when the project comes to an end in five years, the equipment can in fact be sold for $500,000. The firm believes that working capital at each date must be maintained at 10% of next year's forecasted sales. Production costs are estimated at $1.50 per trap and the traps will be sold for $4 each. (There are no marketing expenses.) Sales forecasts are given in the following table. The firm pays tax at 35% and the required return on the project is 12%. What is the NPV?

Figures in 000's  
Year  0  1  2  3  4  5 
Unit Sales   500  600  1,000  1,000  600 
Revenues   2,000  2,400  4,000  4,000  2,400 
Costs  ...
...On January 1, 2011, Boston Company completed the following transactions (use a 9 percent annual interest rate for all transactions
a. Borrowed $103,000 for nine years. Will pay $9,270 interest at the end of each year and repay the $103,000 at the end of the 9th year.
In transaction (a), determine the presentvalue of the debt.
1. We find PV of ANnuity of $1 for 9 Yrs at 9% = 5.9952
PV of $1 for 9Yrs @9% = 0.4604
So PV of debt = 9270*5.9952 + 103000*0.4604 = $1,02,997
b. Established a plant addition fund of $520,000 to be available at the end of year 8. A single sum that will grow to $520,000 will be deposited on January 1, 2011.
In transaction (b), what single sum amount must the company deposit on January 1, 2011?
PV of $1 for 8Yrs @9% = 0.5019
So Single amount deposited = 520000*0.5019 = $2,60,988
c. Agreed to pay a severance package to a discharged employee. The company will pay $84,000 at the end of the first year, $122,500 at the end of the second year, and $146,000 at the end of the third year.
In transaction (c), determine the presentvalue of this obligation
PV = 84000*PVIF(1,9%) + 122500*PVIF(2,9%)+146000*PVIF(3,9%)
= 84000*0.9174 + 122500*0.8417 + 146000*0.7722 =$2,92,911
d. Purchased a $130,000 machine on January 1, 2011, and paid cash, $35,000. A eightyear note payable is signed for the balance. The note will be paid in eight equal yearend payments starting on December 31, 2011....
...Part I
A. PresentValue with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14,018.69
PresentValue with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14,423.08
B. Account A  PresentValue with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08
Account B  PresentValue with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11,213.96
C.PresentValue of Gold Mine 7% = 4900000/1.07 + 61,000,000/(1.07)^2 + 85,000,000/(1.07)^3
= 45,794,392.52 + 61,000,000/1.1449 + 85,000,000/1.2250
= 45,794,392.52 + 53,279,762.42 + 69,385,319.54
= $168,459,474.48
By using the same concept above we can determine the presentvalue of Gold Mine.
PresentValue of Gold Mine @ 5% = 175,421,660.73
PresentValue of Gold Mine @ 3% = 182,858,207.04
When the discount rate is 7%, the presentvalue of gold mine is $168.46m. This value increase by approximately $6.96 when the discount rate is 2% less than 7%. When the discount rate is 3% value of gold mine is 182.86.
Part II
A. Consider the project with the following expected cash flows:
Year  Cash flow 
0  $400,000 
1  $100,000 
2  $120,000 
3  $850,000 
If the discount rate is 0%, what is the project’s net...
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