Homework 3
Effective and Nominal Interest
1.
2.
I finance a car under the following terms:
Purchase Price:
Interest Rate:
Term:
Required Down Payment:
What is the monthly payment?
In 1. above, what is the monthly
payment if the interest rate is
$32,750
5.

Homework 3
Effective and Nominal Interest
1.
2.
I finance a car under the following terms:
Purchase Price:
Interest Rate:
Term:
Required Down Payment:
What is the monthly payment?
In 1. above, what is the monthly
payment if the interest rate is
$18,275
4.

SIE 265 Final Exam Study Guide
The SIE 265 final exam will be a comprehensive exam that will cover the material
presented throughout the semester.
D2L Material:
Review all the material posted on D2L. The final exam will focus primarily on the
material pre

Homework 3
Effective and Nominal Interest
1.
I finance a car under the following terms:
Purchase Price:
Interest Rate:
Term:
Required Down Payment:
What is the monthly payment?
$32,750
5.52% APR compounded monthly
7 years
8.00%
Down Payment
$2,620.00
Amou

IRR Problems
The following problems are typical FE Exam problems.
1. The rate of return for a $10,000 investment that will yield $1000 per year
for 20 years is closest to
a. 1% c. 8%
b. 4% d. 12%
Year:
0
1
Cash Flow
($10,000)
$1,000
2
$1,000
3
$1,000
4
$1

Homework 3
Effective and Nominal Interest
1.
I finance a car under the following terms:
Purchase Price:
Interest Rate:
Term:
Required Down Payment:
What is the monthly payment?
$18,275
4.76% APR compounded monthly
6 years
7.00%
Down Payment
$1,279.25
Amou

Problem 1
JK Corporation
JK Corporation plans to manufacture fan motors.
T he company is considering two alternative production lines depending on the number
of units they decide to manufacture per month. Financial data for these manufacturing
options are

Wildcat Co. Project
Balance Sheet ($s)
1
2
3
4
5
Feb-14 Mar-14
Apr-14 May-14 Jun-14
Assets
Current Assets
Cash
Accounts Receivable
Inventory
Total Current Assets
LongTerm Assets
Property & Equipment
Accumulated Depreciation
Total Long Term Assets
Total As

Problem 1
Solutions:
Units
Selling Price per Unit
Labor per unit
Material per unit
S, G & A per unit
Mfg Overhead per unit
875
$3,128.00
$439.32
$279.61
$73.29
$219.45
670
$2,895.00
$378.18
$362.98
$89.21
$318.65
COGS
Labor
Material
Variable SG & A
Variab

Buying/Depreciating/Selling Assets
An asset is placed on the books in the
month the asset is acquired.
The asset remains on the books until the
asset is scrapped or sold.
The income from the sale of an asset is the
sales price minus the current book va

Periodic Equivalent (PE)
n
k
NPV = SUM [(CFk) / (1+ i ) ]
k=0
PE = NPV [ i (1 + i)n / (1 + i)n -1)] = -PMT (i, N, NPV)
Where: CFk is the cash flow for period k
NPV is the Present Value of the Cash Flow
i is the interest rate or Discount Rate or MARR
k is

Periodic Equivalent Problems
The following problems are typical FE Exam problems.
1. The maintenance expense on a piece of machinery is estimated as follows:
Year
1
2
3
Expense
$150
$300
$450
4
$600
If interest is 8%, the equivalent uniform annual mainten

Comparison of a Project with a Long life vs a Perpetuity
The Project cash flow for a small proposed Hydroelectric Plant is illustrated below.
The 1st 10 years represents the construction (Investment) phase of the Project. Over
the next 50 years, the Proje

Problem 1
JK Corporation
JK Corporation plans to manufacture industrial fan motors.
The company is considering two alternative production lines depending on the number
of units they decide to manufacture per month. Financial data for these manufacturing
o

Homework #2
1. If I invest
at an interest rate of
How much will I have in
$1,125 today
8.27% per year
37 years?
2. I want to accumulate
$750,000 .
If I invest
$20,000 today
and the return is
9.64% per year
when will I reach my goal (years)?
3 How much do

Income Statement Example and Metrics
Create an Income Statement from the Annual Projections below of Revenues and Costs.
1. Compute the per unit cost of each expense item
2. Classify each expense item as Direct or Indirect.
3. Organize the data per the In

Common Income Statement Metrics
Cost of Goods Sold = All Direct Expenses (can be unit or total)
Also known as COGS
Unit Gross Margin (GM)= Unit Revenue Unit Cost of Goods Sold
Also known as Gross Profit
Gross Margin (%) = Gross Margin * 100 / Revenue
A

Discount Rate (MARR)
& Intro to IRR
The Discount Rate or Minimum Acceptable Rate of Return
(MARR) is the cost of capital imposed on a business or project
by the owners of the capital (could be the company or external).
If the Net Present Value (NPV) of th

I borrow
What is my monthly payment
if my loan interest rate is
and loan term is
$10,000
1.0% per month
60 months?
($222.44) Monthly Payment
What is my loan balance after 1 month?
($9,877.56) Loan Balance

Two Dimensional Linear Interpolation
vs
Excel & Financial Calculator Functions
Financial functions used to be difficult to compute before the days of Excel & Financial Calculators.
To simplify computation, tables of various Factors were computed for speci

Linear Interpolation
1.E+08
9.E+07
8.E+07
7.E+07
6.E+07
future value 5.E+07
4.E+07
3.E+07
2.E+07
1.E+07
0.E+00
10
20.0%
20
number of periods
19.5%
30
19.0%
40
18.5%
50
18.0%
interest rate
Linear Interpolation
650
f(t)
450
Straight line fit
Actual Function

Personal Net Worth Statement
Balance Sheet if a business
What I own and owe as of
6/4/2014
Cash: $3000
Cat Card: $100 - Unused balance (can easily be converted to cash within 12 months)
School Loan Balance: $5000 Payments begin:
Dec-15
Car Loan Balance: $

Net Present Value
Example: For a single payment in the future
P=-F(1+i)
-N
What is the maximum amount I would invest
today for a guaranteed payment of $1000
at the end of 5 months
if I could otherwise earn 7% APR compounded
monthly?
Excel Present Value (P