Time Value of Money and Annuities

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Question 1
Fine the future values of the following ordinary annuities:
a.  FV of $400 each 6 months for 5 years at a nominal rate of 12%, compounded semiannually?
b.  Fine of $200 each 3 months for 5 years at a nominal rate of 12%, compounded quarterly?
c.  The annuties described in parts a and b have the same amount of money paid into them during the 5-year period and both earn interest at the same nominal rate, tye annunity in bart b earns $101.75 more that the one in part a over the 5 years.  why does this occur?

Financial Management: Principles and Application - Caledonia, etc

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Prepare a response to the Caledonia Products Integrative Problem located near the end of Ch. 10 in Financial Management: Principles and Applications.

Formulate answers to questions 11a-11d, 12a–12e and 13a-13d

11. Caledonia is considering two investments with one-year lives. The more expensive of the two

is the better and will produce more savings. Assume these projects are mutually exclusive and that the required rate of return is 10 percent. Given the following after-tax net cash flows:

YEAR PROJECT A PROJECT B

0 −$195,000 −$1,200,000

1 240,000 1,650,000

a. Calculate the net present value.

b. Calculate the profitability index.

c. Calculate the internal rate of return.

d. If there is no capital-rationing constraint, which project should be selected? If there is a capital-rationing constraint, how should the decision be made?

12. Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows:

YEAR PROJECT A PROJECT B

0 −$100,000 −$100,000

1 32,000 0

2 32,000 0

3 32,000 0

4 32,000 0

5 32,000 $200,000

The required rate of return on these projects is 11 percent.

a. What is each project’s payback period?

b. What is each project’s net present value?

c. What is each project’s internal rate of return?

d. What has caused the ranking conflict?

e. Which project should be accepted? Why?

13. The final two mutually exclusive projects that Caledonia is considering involve mutually exclusive pieces of machinery that perform the same task. The two alternatives available provide the following set of after-tax net cash flows:

YEAR EQUIPMENT A EQUIPMENT B

0 −$100,000 −$100,000

1 65,000 32,500

2 65,000 32,500

3 65,000 32,500

4 32,500

5 32,500

6 32,500

7 32,500

8 32,500

9 32,500

Equipment A has an expected life of three years, whereas equipment B has an expected life of

nine years. Assume a required rate of return of 14 percent.

a. Calculate each project’s payback period.

b. Calculate each project’s net present value.

c. Calculate each project’s internal rate of return.

d. Are these projects comparable?

e. Compare these projects using replacement chains and EAAs. Which project should be selected? Support your recommendation.

Finance computations

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Question 1:
Ricky and Lucy have decided to refinance their home mortgage loan. Their current home mortgage loan is for $600,000. The mortgage interest rate is 5.75% and it is to be paid off in 30 years with equal monthly payments. After 3 full years of payments, Ricky and Lucy will refinance the balance at 3.0%, to be paid off in 15 years with equal monthly payments. What will Ricky and Lucy's new monthly payments be?

Question 2:
One of the largest automobile dealers in the city advertises a 4-year old car for sale as follows:
• Cash price $6599
Or
• A down-payment of $1000 with 48 monthly payments of $179.99
Questions: A student bought the car and made a down payment of $2000. The dealer charged her the same interest rate used in the advertised offer.

What role does Time Value of Money (TVM) play in the calculation of certain types of liabilities?

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What role does Time Value of Money (TVM) play in the calculation of certain types of liabilities?

John won lottery -Annual Percentage Yield

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Problem 3.John has won a lottery and will receive $1000 every two years for the next 20 years. The first payment is due to be paid exactly 4 months from today. He has offered to sell the payments to you and has agreed to accept 8% APY for exchange. What is the price you must pay to John? 

Sara of Littman Jewellers Annual Percentage Rate

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Problem 2:Sara ,manager of Littman Jewellers, want to sell on credit giving customers 3 months to pay. However Sara has to borrow from her bank to provide financing to customers. The bank will charge an APR of 12% that will be compounded monthly. She quotes an APR to customers based on the effective quarterly rate that will exactly cover hers financing cost.
1. what is effective quarterly rate ?
2.what is the APR Sara should quote to the customers?
3.What is this effective annual rate? 

Amy's subscription - Time Value of Money

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Amy's subscription to cosmopolitan has ended and she wants to renew it by either paying $15.64 annually at a regular rate (ignoring inflation)or subscribing by lifetime membership paying $100.Payments for regular subscription are made at beginning of the year.if annual opportunity cost is 11.24%,how many years AMY has to live to make lifetime membership a better buy?