## Trident FIN501 Case Modules 1

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Module 1 – Case

The Time Value of Money and Financial Statement Analysis

Case Assignment

Solving Present Value and Future Value Problems

You are the CFO (Chief Financial Officer) of ABC Golf Equipment Corporation, a small company that sells golf equipment. Mr. Hillbrandt, the new CEO (Chief Executive Officer) has a marketing background and is trying to learn more about the financial side of running a business. He wants your help and asks for an introduction to the concept of time value of money.

## FIN 534 HOMEWORK

FIN 534 HOMEWORK

Assume that you are nearing graduation and that you have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination which covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions.

1. Present value of an uneven cash flow stream of -\$50, \$100, \$75, and \$50 at the end of years 0 through 3

2.We sometimes need to find how long it will take a sum of money (or anything else) to grow to some specified amount. For example, if a company’s sales are growing at a rate of 20 percent per year, how long will it take sales to double?

3.Will the future value be larger or smaller if we compound an initial amount more often than annually, for example, every 6 months, or semiannually, holding the stated interest rate constant? Why?

4.What is the effective annual rate (EAR)? What is the ear for a nominal rate of 12 percent, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?

5.Suppose on January 1 you deposit \$100 in an account that pays a nominal, or quoted, interest rate of 11.33463 percent, with interest added (compounded) daily. How much will you have in your account on October 1, or after 9 months?

## Questions with Answer in Excel Sheet

1. How long does it take for the following to happen? \$450 grows into \$725.50 at 12% compounded monthly.
2. How long does it take for the following to happen? \$5,000 grows into \$6724.44 at 10% compounded quarterly.
3. How long does it take for the following to happen? \$856 grows into \$1,122 at 7%.
4. Find out present value when interest rate is 18%. Effective interest rate is 19.56% and future value is \$10,000 and time period is 3 years.
5. The Lexington Property Development Company has a \$10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 7% compounded continuously?
6. The Lexington Property Development Company has a \$10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 9%?
7. What interest rates are implied by the following lending arrangements? You borrow \$500 and repay \$555 in one year?
8. What interest rates are implied by the following lending arrangements? You lend \$750 and are repaid \$1,114.46 in five years with quarterly compounding.
9. What will a deposit of \$4,500 left in the bank be worth under the following conditions: Left for five years at 8% compounded quarterly?
10.  What will a deposit of \$4,500 left in the bank be worth under the following conditions: Left for six years at 10% compounded semiannually?

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## Bauer Industries Free Cashflow Projections

Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 12 to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars):

a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks?

## Net Present Value (NPV) Calculations Using Each Model

Net Present Value (NPV) Calculations Using Each Model

Need the Net Present Value (NPV) calculations each model using the following techniques and ignoring income taxes: Dr. David Dunn, head of the radiology department at Grant Clinic Inc., is adding a new piece of diagnostic equipment to the department. Two similar models are offered by two different vendors, and both models would serve the needs of the clinic. Both also have an estimated useful life of five years, with no salvage value at the end of five years. The only difference between the two models is the cost and estimated annual labor savings, as shown below: Model A Model B Cost, including installation \$120,000 \$110,000 Estimated annual labor savings \$40,000 \$32,000 The straight-line method of depreciation is used on the books. Senior management of the clinic has established a target rate of return of 15% for all equipment with a useful life of over two years and a desired payback period of three years.

Price of Answer: Just US\$ 5 only

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## Finance Questions Related to PV, FV, FVOA & NPV

Finance Questions Related to PV, FV, FVOA & NPV in \$2.50 only

1. Calculate the future value of 1,535 invested today for 8 years at 6 percent.

2. What is the total present value of the following cash stream, discounted at 8 percent?

Year    1       2      3      4       5

Amt   400   750  945  145   78

3. If you invested \$2,000 per year into an IRA for 30 years and received 6 percent return each year, what would the account balance be in 30 years?

4. A friend gives you a proposition. If you give him 1,500 dollars today, he will guarantee your receive 12 percent a year for the next 5 years. How much money will you receive from him at the end of 5 years?

5. You want to buy a new Computer Aided Design (CAD) system for your business. The cost of the system is \$150,000 and you expect to save over \$40,000 per year in reduced labor costs. Please calculate the net present value of the CAD if your required return is 10 percent and the life of the system is expected to be 5 years.

6. Your company is considering converting its heating system in the main office from coal to heating oil. The initial cost of removing the coal fired furnace and installing an new oil fired unit is \$60,000. The life of the analysis is 7 years. In the past you spent \$25,000 per year on coal. The new company says you will spend no more than \$15,000 per year on heating oil. If your required return is 12 percent, should you make this investment? Please calculate the net present value of this project.

Price of Answer: Just US\$2.50 only

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## Finance Questions

Finance Questions in \$10 only

1. How long does it take for the following to happen? \$450 grows into \$725.50 at 12% compounded monthly.

2. How long does it take for the following to happen? \$5,000 grows into \$6724.44 at 10% compounded quarterly.

3. How long does it take for the following to happen? \$856 grows into \$1,122 at 7%.

4. The Lexington Property Development Company has a \$10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 18% compounded monthly?

5. The Lexington Property Development Company has a \$10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 7% compounded continuously?

6. The Lexington Property Development Company has a \$10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 9%?

7. What interest rates are implied by the following lending arrangements? You borrow \$500 and repay \$555 in one year

8. What interest rates are implied by the following lending arrangements? You lend \$750 and are repaid \$1,114.46 in five years with quarterly compounding.

9. What will a deposit of \$4,500 left in the bank be worth under the following conditions: Left for five years at 8% compounded quarterly?

10. What will a deposit of \$4,500 left in the bank be worth under the following conditions: Left for six years at 10% compounded semi-annually?

Price of Answer: Just US\$10 only (With Excel Sheet)

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## Finance Problems (Present Value and Future Value Related)

Finance Problems (Present Value and Future Value Related) in \$6 Only

You are saving for retirement. To live comfortably, you decide you will need to save \$2 million by the time you are 65. Today is your 30th birthday, and you decide, starting today and continuing on every birthday up to and including your 65the birthday, that you will put the same amount into a savings account. If the interest rate is 5%, how much must you set aside each year to make sure that you will have \$2 million in the account on your 65th birthday?
Problem #2
You realize that he plan in Problem #1 has a flaw. Because your income will increase over your lifetime, it would be more realistic to save less now and more later. Instead of putting the same amount aside each year, you decide to let the amount that you set aside grow by 3% per year. Under this plan, how much will you put into the account today? (Recall that you are planning to make the first contribution to the account today.)