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FIN 550 Milestone 4 FIN 550 Milestone 4 Southern New Hampshire University 8/3/17 Professor. Dr. Ed Balli Macroeconomic Items 1
FIN 550 Milestone 4 Implications Changes in interest rate can have a severe impact on a company; interest rates directly affect shareholder value. Based on the calculations in the Excel workbook, the FCF payments of the capital lease are discounted back to show their worth in the present value. It helps show how much debt the company has for that specific period. For each of the five FCF payments, we used the formula PV=FVn/(1+I)^n to calculate the present values. “N” represents the number of years and “I” stands for interest rate. In the original scenario with interest at 8%, the total present value of the FCF was roughly \$425,780,000. When the interest rate dropped to 5%, the present value rose to roughly \$460,690,000. Conversely, when the interest rate rose to 15%, the present value dropped to roughly \$359,180,000. The capital lease payments are at a fixed price for each specific year. When it is a higher interest rate and the present value is lower, it benefits the company. That is because it takes less money today for it to reach the fixed capital payment amounts. However, when the interest rate decreases, this makes the present value higher, meaning the company needs more money today to reach the same fixed capital lease payment prices.