Week_2_Solutions

# Week_2_Solutions - Question 2-3 Pooi Phan needs \$2,000 to...

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Question 2-3 Cash Flow Diagram (CFD) frpm bank's perspective (Not necessarily to scale) \$x \$x \$x \$x 0 1 2 3 4 \$2,000 \$x= \$564.02 =PMT(5%,4,-2000,0) Then the CFD becomes: \$564.02 \$564.02 \$564.02 \$564.02 0 1 2 3 4 \$2,000 Pooi Phan needs \$2,000 to pay off her bills. She borrows this amount from a bank  with plans to pay it back over the next 4 years at \$ X  per year. Create a cash flow  diagram from the bank's perspective Created by shading a cell(s) and right clicking on "Format" and then clicking on "Borders". Also, the "Format Painter came in handy. The value of \$x can be determined as follows since the payments are all equal and assuming some interest rate such as 5% annual:

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Question 2-5 Cash Flow Diagram (CFD) OF Mercrusier CNC Machine (Not to scale) Since planning horizon is 10 years, an upgrade would not show at year 10. (+) \$7,000 \$7,000 \$7,000 \$7,000 \$7,000 \$7,000 \$7,000 \$7,000 \$7,000 \$7,000 0 1 2 3 4 5 6 7 8 9 10 \$1,000 \$1,000 \$1,000 \$1,000 \$1,000 \$1,000 \$1,000 \$1,000 \$1,000 \$1,000 (-) + \$5000 \$50,000 Mercruiser purchases a used, recently upgraded computer numerical control (CNC) machine for turning operations. It costs \$50,000, and since the machine will increase productivity, the company expects to increase sales by \$7,000 per year. Maintenance costs are \$1,000 per year starting 1 year after purchase. Every 5 years, the machine will require a software upgrade costing \$5,000. Draw the cash flow diagram for the scenario described if Mercruiser uses a 10-year planning horizon.
Question 2-5 Account 1 for \$500 or over: 5.5 percent per year simple interest Account 2 for \$2,000 or over: 5 percent per year compound interest Account 3 for \$6,000 or over: 6.5 percent per year simple interest Account 4 for \$10,000 or over 6 percent per year compound interest Account Amount Rate Type Years End of Year 5 Equation Excel Function 1 \$10,000  5.50% Simple 5 \$12,750.00  =C12*(1+D12*E12) 2 \$10,000  5% Compound 5 \$12,762.82  =C13*(1+D13)^E13 =FV(D13,E13,0,-C13) 3 \$10,000  6.50% Simple 5 \$13,250.00  =C14*(1+D14*E14) 4 \$10,000  6% Compound 5 \$13,382.26  =C15*(1+D15)^E15 =FV(D15,E15,0,-C15) Prefer 6% compounded annually.

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