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Unformatted text preview: .14 Lease the car. Enter 240 N 10.48% / 12 I/Y $80,121.62± PV PMT –$2,486.12 $2,656,102.8 1 FV PV $20,468.62 PMT $26,000 FV PV $16,594.14 $520 PMT FV 98 99 You would be indifferent when the PV of the two cash flows are equal. The present value of the purchase decision must be $16,594.14. Since the difference in the two cash flows is $38,000 – 16,594.15 = $21,404.86, this must be the present value of the future resale price of the car. The breakeven resale price of the car is: Enter Solve for 59. Enter Solve for 5% NOM 365 C/Y 36 N 8% / 12 I/Y $21,404.86 PV PMT FV $27,189.25 EFF 5.13% CFo $7,500,000 C01 $4,200,000 F01 1 C02 $5,100,000 F02 1 C03 $5,900,000 F03 1 C04 $6,800,000 F04 1 C05 $7,400,000 F05 1 C06 $8,100,000 F06 1 I = 5.13% NPV CPT $38,519,529.66 New contract value = $38,519,529.66 + 750,000 = $39,269,529.66 PV of payments = $39,269,529.66 – 10,000,000 = $29,269,529.66 Effective quarterly rate = [1 + (.05/365)]91.25 – 1 = 1.258% Enter Solve for 60. Enter Solve for 24 N 1.258% I/Y $29,269,529. 66 PV PMT $1,420,476.4 3 FV 1 N I/Y 16.28% $17,200 PV PMT ± $20,000 FV 100 61. Enter NOM Solve for Enter Solve for Enter Solve for Enter Solve for Enter Solve for 60 N 12 N 1 N 8.65% 12 N 9% EFF 12 C/Y 8.65% / 12 I/Y PV $42,000 / 12 PMT FV $43,705.55 9% I/Y $43,705.55 PV PMT FV $47,639.05 8.65% / 12 I/Y PV $45,000 / 12 PMT FV $46,827.37 8.65% / 12 I/Y PV $198,332.55 $49,000 / 12 PMT FV Award = $47,639.05 + 46,639.05 + 198,332.55 + 150,000 + 25,000 = $467,798.97 62. Enter Solve for Enter Solve for 1 N 1 N $9,700 PV ± $10,900 FV I/Y 12.37% PMT I/Y 14.29% $9,800 PV PMT ± $11,200 FV 101 63. Refundable fee: With the $2,100 application fee, you will need to borrow $202,100 to have $200,000 after deducting the fee. Solve for the payment under these circumstances. Enter Solve for Enter Solve for 30 × 12 N $200,000 PV 30 × 12 N 6.80% / 12 I/Y $202,100 PV PMT $1,317.54 ± $1,317.54 PMT FV I/Y 0.5752% FV APR = 0.5752% × 12 = 6.90% Enter Solve for 6.90% NOM EFF 7.13% 12 C/Y Without refundable fee: APR = 6.80% Enter Solve for 64. Enter Solve for 36 N 6.80% NOM EFF 7.02% 12 C/Y I/Y 2.64% $1,000 PV ± $43.36 PMT FV APR = 2.64% × 12 = 31.65% Enter Solve for 65. Enter Solve for a. Enter Solve for 31.65% NOM EFF 36.67% 12 C/Y What she needs at age 65: 25 N 9% I/Y PV $1,080,483.7 6 $110,000 PMT FV 30 N 9% I/Y PV PMT $7,926.81 $1,080,483.7 6 FV 102 103 b. Enter Solve for c. Enter Solve for 30 N 9% I/Y PV $81,437.29 $50,000 PV PMT $1,080,483.7 6 FV 10 N 9% I/Y PMT FV $118,368.18 At 65, she is short: $1,080,483.76 – 118,368.18 = $962,115.58 Enter Solve for 30 N 9% I/Y PV PMT $7,058.42 ±$962,115.58 FV Her employer will contribute $1,500 per year, so she must contribute: $7,058.42 – 1,500 = $5,558.42 per year 66. Enter Solve for Enter Solve for N 53.96 N 77.74 Without fee: 18.6% / 12 I/Y $9,000 PV ± $200 PMT FV 8.2% / 12 I/Y $9,000 PV ± $200 PMT FV With fee: Enter Solve for 67. Enter Solve for N 55.27 8.2% / 12 I/Y $9,180 PV ± $200 PMT FV Value at Year 6: 5 N 11% I/Y $800 PV PMT FV $1,348.05 104 Enter Solve for Enter Solve for Enter Solve for 4 N 11% I/Y $800 PV PMT FV $1,214.46 3 N 11% I/Y $900 PV PMT FV $1,230.87 2 N 11% I/Y $900 PV PMT FV $1,108.89 Enter Solve for 1 N 11% I/Y $1,000 PV PMT FV $1,110.00 So, at Year 5, the value is: $1,348.05 + 1,214.46 + 1,230.87 + 1,108.89 + 1,110.00 + 1,000 = $7,012.26 At Year 65, the value is: Enter PMT FV Solve for $379,752.76 The policy is not worth buying; the future value of the policy is $379,752.76 but the policy contract will pay off $350,000. 68. Effective sixmonth rate = (1 + Daily rate)180 – 1 Effective sixmonth rate = (1 + .09/360)180 – 1 Effective sixmonth rate = .0460 or 4.60% Enter Solve for 40 N 4.60% I/Y $750,000 PMT 59 N 7% I/Y $7,012.26 PV PV $13,602,152. 32 FV Enter Solve for 1 N 4.60% I/Y PV $13,003,696. 50 PMT $13,602,152. 32 FV Value of winnings today = $13,003,696.50 + 2,000,000 105 Value of winnings today = $15,003,696.50 106 69. CFo C01 F01 C02 F02 IRR CPT 10.57% 73. a. Enter Solve for ± $8,000 ± $8,000 5 $20,000 4 APR = 9% × 52 = 468% 468% NOM EFF 8,734.42% 52 C/Y b. Enter Solve for 1 N I/Y 9.89% $9.10 PV PMT ± $10.00 FV APR = 9.89% × 52 = 514.29% Enter Solve for c. Enter Solve for 4 N 514.29% NOM EFF 13,384.90% 52 C/Y I/Y 25.19% $58.84 PV ± $25 PMT FV APR = 25.19% × 52 = 1,309.92% Enter Solve for 1,309.92 % NOM EFF 11,851,501.9 4% 52 C/Y 107 CHAPTER 4, APPENDIX NET PRESENT VALUE: FIRST PRINCIPLES OF FINANCE
Solutions to Questions and Problems NOTE: All endofchapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem. 1. The potential consumption for a borrower next year is the salary during the year, minus the repayment of the loan and interest to fund the current consumption. The am...
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This note was uploaded on 07/10/2010 for the course FIN 6301 taught by Professor Eshmalwi during the Spring '10 term at University of TexasTyler.
 Spring '10
 eshmalwi
 Finance, Corporate Finance

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