# Managerial Decision Modeling

a)

Interest Rate12%

Price per ounce$ 1,500.00

Cost per ounce$ 400.00

Total ounces a year10,000

Profit per ounce$ 1,100

Revenue per year$ 15,000,000.00

Cost per year$ 4,000,000.00

Profit per year$ 11,000,000.00

Every year for the next 10 years, the firm earns a profit of $11 Million. The cash flow (in $ Million) is shown below: YearTT+1T+2T+3T+4T+5T+6T+7T+8T+9

Profit11111111111111111111

Using NPV formula, we find NPV=$62,152,453.31

b) The NPVs (in $ Million) for variations in profit per ounce and interest rate are shown in table below:

8%9%10%11%12%13%14%15%

$50033.5532.0930.7229.4528.2527.1326.0825.09

$60040.2638.5136.8635.3433.932.5631.330.11

$70046.9744.9243.0141.2239.5537.9836.5135.13

$80053.6851.3449.1647.1145.243.4141.7340.15

$90060.3957.7655.35350.8548.8446.9545.17

$100067.164.1861.4558.8956.554.2652.1650.19

$110073.8170.5967.5964.7862.1559.6957.3855.21

$120080.5277.0173.7470.6767.865.1262.5960.23

$130087.2383.4379.8876.5673.4570.5467.8165.24

$140093.9489.8586.0282.4579.175.9773.0370.26

$1500100.6596.2792.1788.3484.7581.3978.2475.28

2. Savings for Future Expenditures

Interest Rate8%

Current College Tuition$ 40,000

Annual growth rate of tuition5%

Time of first college payment (yrs)6

Time of last college payment (yrs)9

Annual growth rate of investment6%

Time of last investment (yrs)9

a) The cash flow of tuition (in dollars) is shown below:

Year0123456789

Tuition------53,60456,28459,09862,053

To cover the tuition expenses she has to invest something today which if it grows at 6% every year for 9 years, provides the same NPV as the NPV of the tuition payment. Thus the present value at 0 is the initial investment. Using NPV and cash flow formula, where C_i is cash flow of tuition, and A initial investment: NPV(8%,9)=∑_(i=0)^9▒〖...

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