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M - Bisa Eco

This document contains solutions to two sample problems involving calculations of present value with given cash flows and interest rates. Problem 7 asks for the present worth of two $100 payments at the end of years 3 and 4 with an 8% annual interest rate, and the answer is $153. Problem 8 asks for the net present value of a project involving investments of $100,000 now and at the end of year 1, with revenues of $150,000 at the end of years 1 and 2 and a 10% interest rate, and the answer is $69,500. Both problems show the relevant cash flows and use the present value formula to calculate the solution.

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88 views5 pages

M - Bisa Eco

This document contains solutions to two sample problems involving calculations of present value with given cash flows and interest rates. Problem 7 asks for the present worth of two $100 payments at the end of years 3 and 4 with an 8% annual interest rate, and the answer is $153. Problem 8 asks for the net present value of a project involving investments of $100,000 now and at the end of year 1, with revenues of $150,000 at the end of years 1 and 2 and a 10% interest rate, and the answer is $69,500. Both problems show the relevant cash flows and use the present value formula to calculate the solution.

Uploaded by

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

NO.1
BISA, MISHAEL KARLITO V.
ME-5301
PROBLEM NO. 7
What is the present worth of two $100 payments at the end of the third and fourth years if the annual interest
rate is 8%?

A. $122 B. $153 C. $160 D. $162


Given:
:$100 payment at the end of third and fourth year
:Annual interest of 8%; i=8%
Required: Present worth, P
Solution:
Cash Flow Diagram:
 USING FORMULA:
where: P is the present value, F is the future value, i is the interest rate and n is
the compounding period

Substituting the values to the equation:

P=$153, B is the answer


PROBLEM NO. 8
Consider a project that involves the investment of $100, 000 now and $100, 000 at the end of year 1. Revenues
of $150, 000 will be generated at the end of years 1 and 2. What is most nearly the net present value of this project
if the effective annual interest rate is 10%?

A. $43,300 B. $50,900 C. 69, 500 D. $78,500

Given:
:Investment of $100,000 now and $100,000 at the end of year 1
:Revenues at the of end of years 1 and 2 of $150,000
:Annual interest of 10%; i=0.10%
Required: Present value, P
Solution:
Cash Flow Diagram:
 USING
FORMULA:
where: P is the present value, F is the future value, i is the interest rate and n is the
compounding period

Substituting the values to the equation:

P=$69,500, C is the answer

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