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Problem Set #1

The document presents a series of financial problems related to cash flows, annuities, loans, mortgages, and investment projects, all involving a discount rate of 5%. It includes calculations for present and future values, net present value, annual mortgage payments, and a comparison between buying and leasing a machine. Each problem requires specific financial computations to determine values and analyze scenarios.

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shoxjaxon2019
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2 views1 page

Problem Set #1

The document presents a series of financial problems related to cash flows, annuities, loans, mortgages, and investment projects, all involving a discount rate of 5%. It includes calculations for present and future values, net present value, annual mortgage payments, and a comparison between buying and leasing a machine. Each problem requires specific financial computations to determine values and analyze scenarios.

Uploaded by

shoxjaxon2019
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Problem

 Set  1,  Time  Value  of  Money  


 
Problem  1:  
• A  cash  flow  of  $  1.000  will  be  received  five  periods  from  now.  Discount  rate  is  5%  
per  period.  What  is  the  present  value?  
• A  cash  flow  of  $  1.000  will  be  received  now.  Discount  rate  is  5%  per  period.  What  
is  period  5  future  value?  
 
Problem  2:  
An  annuity  of  $  1.000  will  be  received  for  5  periods.  First  payment  is  now.  Discount  rate  
is  5%  per  period.  
• What  is  the  present  value?  
• What  is  period  4  future  value?  
A  loan  of  $  5.000  will  be  repaid  in  five  annuities.  Interest  rate  is  5%.  
• What  is  the  annuity?  Use  solver.  
 
Problem  3:  
A  project  requires  an  investment  of  $  1.000  today  and  yields  future  expected  cash  flows  
of  $  200,  $  300,  $  400,  $  500  and  $  600  in  periods  1  to  5.    
• Nominal  discount  rate  is  5%.  What  is  the  net  present  value?  
• Nominal  discount  rates  are  5,00%,  5,25%,  5,50%,  5,75%  and  6,00%  for  periods  1  
to  5  respectively.  What  is  the  net  present  value?  
 
Problem  4  
You  take  out  a  20  year  mortgage.  The  loan  amount  is  $  250.000.  The  mortgage  charges  
5%  per  year.  
• What  is  the  annual  payment  per  year?  How  much  goes  into  paying  interest  and  
repaynment  of  principal?  
• Do  a  sensivity  analysis  for  problem  4  using  interest  rates  of  4%  and  6%  in  
addition.  
 
Problem  5  
A  corporation  is  thinking  about  buying  or  leasing  a  machine.  Both  interest  payments  and  
leasing  rate  are  tax  deductable.  Corporate  tax  rate  is  35%.  
Data  for  buying  is:  
• Price  of  $  50.000  will  be  borrowed  from  bank.  
• Interest  rate  is  5%  
• Number  of  payments  (loan  fully  amortized)  is  5  
• Linear  depreciation  over  5  years  of  machine  
Data  for  leasing  is:  
• Annual  Leasing  payment  is  $  7.379,30  
• Number  of  payments  is  5  
• First  payment  is  now  
• Residual  payment  is  $  20.000.  
Data  for  both  is  
• Tax  rate  is  35%  
• Discount  rate  is  after  tax  interest  rate  of  loan  
What  is  the  present  value  of  both  alternatives?  Where  does  the  difference  come  from?  

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