Chapter1 - 5 3,000,000.00 0.62 1,862,763.97 6 3,400,000.00...

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DESCRIPTION VARIABLES CURRENT ANNUAL SALARY $50,000.00 RETIREMENT SAVING PLAN YEAR BEGINS NEXT YEAR END AMOUNT TO BE DEPOSITED FOR SAVING PLAN; % OF ANNUAL SALARY 2% SAVING ACCOUNT WILL EARN, PER YEAR 8% SALARY INCREASES; PER ANNUM 4% CAREER LENGTH; YEARS 40 BASE SALARY WHEN RETIRMENT PLAN STARTS 52,000.00 FIRST YEARS SAVING AMOUNT 1,040.00 STEP 1: CALCULATE THE PRESENT VALUE OF GROWING ANNUTY C 1,040.00 g 4% r 8% PRESENT VALUE OF GROWING ANNUITY 20,254.12 =B14*((1-((1+B15)/(1+B16))^40)/(B16-B15)) OR =1040*((1-((1+0.04)/(1+0.08))^40)/(0.08-0.04)) STEP 2: CALCULATE THE FUTURE VALUE (FV) OF AN INVESTMENT C 20,254.12 r 8% FUTURE VALUE (FV) OF AN INVESTMENT - (AMOUNT AVAILABLE IN 40 YRS) 440,011.02 =ROUND(B25*((1+B26)^40),2) OR =ROUND(20254.12*((1+0.08)^40),2)
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PERIOD AMOUNT DISCOUNT RATE PRESENT VALUE TODAY 1,000,000.00 1 1,000,000.00 1 1,400,000.00 0.91 1,272,727.27 2 1,800,000.00 0.83 1,487,603.31 3 2,200,000.00 0.75 1,652,892.56 4 2,600,000.00 0.68 1,775,834.98
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Unformatted text preview: 5 3,000,000.00 0.62 1,862,763.97 6 3,400,000.00 0.56 1,919,211.36 7 3,800,000.00 0.51 1,950,000.85 8 4,200,000.00 0.47 1,959,331.00 9 4,600,000.00 0.42 1,950,849.04 10 5,000,000.00 0.39 1,927,716.45 TOTAL 18,758,930.79 PROJECT CASH FLOWS PV, 10% CASH FLOWS PROFITABILITY INDEX NPV, 10% C0 C1 C2 C3 TOTAL C1 C2 C3 1-30,000.00 15,000.00 15,000.00 15,000.00 37,302.78 13,636.36 12,396.69 11,269.72 1.24 7,302.78 2-5,000.00 2,800.00 2,800.00 2,800.00 6,963.19 2,545.45 2,314.05 2,103.68 1.39 1,963.19 a) If PI is applied, Project II is to be accepted b) If NPV decision rule is applied, Project I is to be accepted. c) In Mutually Exclusive Projects like Robb Computer Corporation, NPV analysis forces Project I to be accepted, because it has a greater NPV. If PI applied, then Project II is to be accepted, because it has highest Profitability Index...
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This note was uploaded on 02/14/2011 for the course FINANCE 610 taught by Professor Siad during the Fall '09 term at UMBC.

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Chapter1 - 5 3,000,000.00 0.62 1,862,763.97 6 3,400,000.00...

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