Ch.14_Solution_Manual_Ed.1_v4_

Ch.14_Solution_Manual_Ed.1_v4_ - Exercises 14.2 Exercise...

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Exercises 14.2 Exercise 14.2, Solution 1 : j = 10% = 0.10, m = 1 m j i = = = 0.1 0 Pr e s e n t V alu e o f cas h f l o w s: PV All cash flows = 10,000.00(1+0.10) -1 + 20,000.00(1+0.10) -2 + 30,000.00(1+0.10) -3 = 9090.90909. .. + 16,528.92562. .. + 22,539.44403. .. = $48,159.27874. .. = $48,159.28 Th e discou n ted c a s h flow s of $ 48,159.28 a re less t ha n the i ni tia l $50 , 000.00 cos t for t he pr ojec t. The r e fo re , the company shouldn’t make this investment . Exercise 14.2, Solution 3 : j = 20% = 0.20, m = 1 m j i = = = 0.20 Campaign A Pr e s e n t V alu e o f cas h f l o w s: PV All cash flows = 120,000.00(1+0.20) -1 + 30,000.00(1+0.20) -2 = 100,000.00 + 20,833.33333. .. = $120,833.33333. .. = $120,833.33 Campaign B Pr e s e n t V alu e o f cas h f l o w s: PV All cash flows = 40,000.00(1+0.20) -1 + 120,000.00(1+0.20) -2 = 33,333.33333. .. + 83,333.33333. .. = $116,666.6666. .. = $116,666.67 Campaign A h as a hig her d is co u n ted c as h f low tha n Campaign B . Th er e f or e, they sho u l d c h o os e Campaign A . Exercise 14.2, Solution 5 : j = 22% = 0.22, m = 1 m j i = = = 0.22 P V of cash flows including the salvage value at the end: PV Cash flows = 20,000.00(1+0.22) -1 + 15,000.00(1+0.22) -2 + (5000.00 + 15,000.00) × (1+0.22) -3 = 16,393.44262. .. + 10,077.93604. .. + 11,014.13775. .. = $37,485.51641. .. = $37,485.52 Th e discou n ted c a s h flow s of $ 37,485.52 a re less t ha n the i ni tia l $40 , 000.00 cos t for t he pr ojec t.
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Therefore, purchasing this truck is not a sound investment decision. Exercise 14.2, Solution 7 : Lease option T he l e a s e pa ym ents f or m a s i m p le an n uity d u e . n = 12 payments/year × 5 years = 60 monthly payments. j = 8% = 0.08, m = 12 m j i = = = 0.006666. .. monthly PV Least payments = PMT (1+ i ) = 400(1+0.006666. ..) = $19,858.88916. .. PV E n d -of -Le as e Pur c h as e P rice = 15,000(1 + 0.006666. .. ) -60 = $10,068.15666. .. PV( Least payments + E n d -of -Le as e Pur c h as e P rice ) = 19,858.88916. .. + 10,068.15666. .. = $29,927.04582. .. = $29,927.05 Buy option The P V of the lease option is greater than the buy option of purchasing it for $25,000.00. Th ere f or e, Amy sh o u ld c ho os e t he buy opt i o n. Exercise 14.2, Solution 9 : a. 6% compounded monthly j = 6% = 0.06, m = 12 m j i = = = 0.005 Purchasing option T he maintenance and property tax payments f or m a s i m p le an n uity d u e . n = 12 payments/year × 5 years = 60 monthly payments. PV maintenance and property tax payments = PMT (1+ i ) = 500(1 + 0.005) = $25,992.09428. .. The selling price of the apartment at the end of the 5 th year = 165,000(1 + 0.1) = $181,500.00 PV Selling P rice = 181,500(1 + 0.005 ) -60 = $134,559.0536. .. PV total ocst = 165,000.00 + 25,992.09428 ... - 134,559.0536. .. = $56,433.04066. .. = $56,433.04 Renting option T he rents f or m a s i m p le an n uity d u e . n
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Ch.14_Solution_Manual_Ed.1_v4_ - Exercises 14.2 Exercise...

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