ACCT20200 Chapter Notes - Chapter Appendix C: Interest, Compound Interest

CORP FIN FINAL PT D

25. You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5% annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire (there could be more than one answer)?

A. Invest in a different account paying a higher rate of interest. B. Invest in a different account paying a lower rate of interest. C. Retire later. D. Retire sooner.

26. In calendar 2018, you earned a salary of $55,000. You expect to be given 4% annual merit increases on January 1 of each year for the foreseeable future. What is your projected annual salary in 2023? (Show calculation)

27. You have won a contest that will pay you $10,000 a year at the end of each of the next 5 years. Based on a discount rate of 8% per year, what is the annuity worth to you today? (Show calculation)

1. How much should you be willing to pay for one share of stock if the company just paid a $2.75 dividend, you expect the dividends to increase by 5% annually, and you need a 14% return on your investment? (Show calculation)

1. What is the net present value of a project that has an upfront cash outlay of $30,000, and generates cash inflows of $15,000 in year 1, $20,000 in year 2, and $25,000 in year 3 assuming that the company’s cost of capital is 12.5% per year? (Show calculation)

45. You are depositing $18,000 in a retirement account today and expect to earn an average return of 6% per year on this money. How much additional income will you earn if you leave the money invested for 24 years instead of just 20 years?

PLEASE SHOW YOUR WORK NO SCREEN SHOTS OR IMAGES OF RESPONSE. PLEASE TYPE YOUR ANSWER OR UPLOAD DOCUMENT IF REQUIREMENTS MENTIONED ABOVE ARE NOT MET I WILL GIVE A NEGATIVE RATING

Please provide the value for each component N= , I=, PV=, FV=,etc so I can learn how to do it in the calculator. thank you

Annuity payment for expected Future Value
6. You wish to retire with $5 Million in 38 years. Youestimate you will earn 8% annually on your

investments. How much must you invest each year in order toreach your goal?a) Ordinary (1st payment made at the end of theyear)b) Due (1st payment made today)

7. You would like to withdraw $80,000 per year duringretirement. You expect to live 20 yearsafter you retire at age 65.How much do you need to have saved by the time you retire if youcan

earn 4% on your funds?

Present Value of an Annuity
8. As part of an agreement for investing in a start-upcompany, you will receive $10,000 at the endof each year for thenext 3 years. If the agreed upon interest rate is 15%, what is theamount of

money you are required to invest.

9. Part A) From the sale of your family property, youwill receive $25,000 today and again eachyear for the next 15years. If the discount rate is 7%, compute the present value ofyour future

payments.Part B) Instead of receiving annual payments, you couldreceive $200,000 lump sum. Should youtake the lump sum instead?

Perpetuity
10. You plan to purchase a small service company. Youanticipate receiving annual cash flows of$60,000 per yearindefinitely. (A) If you require an 8% return on your investment,what is themost you should pay for this company? (B) What is theNPV if you can purchase it for $500,000?

Using the Payback Method, IRR, and NPV Problems Purpose ofAssignment The purpose of this assignment is to allow the studentto calculate the project cash flow using net present value (NPV),internal rate of return (IRR), and the payback methods. AssignmentSteps Resources: Corporate Finance Calculate the following timevalue of money problems in Microsoft Excel or Word document. Youmust show all of your calculations. If you want to accumulate$500,000 in 20 years, how much do you need to deposit today thatpays an interest rate of 15%? What is the future value if you planto invest $200,000 for 5 years and the interest rate is 5%? What isthe interest rate for an initial investment of $100,000 to grow to$300,000 in 10 years? If your company purchases an annuity thatwill pay $50,000/year for 10 years at a 11% discount rate, what isthe value of the annuity on the purchase date if the first annuitypayment is made on the date of purchase? What is the rate of returnrequired to accumulate $400,000 if you invest $10,000 per year for20 years. Assume all payments are made at the end of the period.Calculate the project cash flow generated for Project A and ProjectB using the NPV method. Which project would you select, and why?Which project would you select under the payback method? Thediscount rate is 10% for both projects. Use Microsoft® Excel® toprepare your answer. Note that a similar problem is in the textbookin Section 5.1. Sample Template for Project A and Project B: Showall work. Submit the all calcluations. Click the Assignment Filestab to submit your assignment.