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    Solution 04

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    api-26315128
    This document presents a multi-step financial calculation to evaluate an investment opportunity for buying a house. It first defines a present value formula that includes several cash flows discounted at 0.5% over various time periods. It then calculates the present value of this investment as $3339. Based on this positive present value, it recommends that Yogajothi should buy the house.

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    Solution 04

    Uploaded by

    api-26315128
    64 views2 pages
    This document presents a multi-step financial calculation to evaluate an investment opportunity for buying a house. It first defines a present value formula that includes several cash flows discounted at 0.5% over various time periods. It then calculates the present value of this investment as $3339. Based on this positive present value, it recommends that Yogajothi should buy the house.

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    Solution04

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    This document presents a multi-step financial calculation to evaluate an investment opportunity for buying a house. It first defines a present value formula that includes several cash flows discounted at 0.5% over various time periods. It then calculates the present value of this investment as $3339. Based on this positive present value, it recommends that Yogajothi should buy the house.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    64 views2 pages

    Solution 04

    Uploaded by

    api-26315128
    This document presents a multi-step financial calculation to evaluate an investment opportunity for buying a house. It first defines a present value formula that includes several cash flows discounted at 0.5% over various time periods. It then calculates the present value of this investment as $3339. Based on this positive present value, it recommends that Yogajothi should buy the house.

    Copyright:

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    3.

    27
    P = −15 000 − 800(P/A, 0.5%, 24) + 20 000(P/F, 0.5%, 24)
    + 1000(P/A, 0.5%, 12) + 1200(P/A, 0.5%, 12)(P/F, 0.5%, 12)
    − [200 + 20(A/G, 0.5%, 18)](P/A, 0.5%, 18)(P/F, 0.5%, 6)

    = −15 000 − 800(22.558) + 20 000(0.88721) + 1000(11.616)


    + 1200(11.616)(0.94192) − [200 + 20(8.3198)](17.168)(0.97052)

    = −15 000 − 18 046 + 17 744 + 11 616 + 13 130 − 6105 = 3339


    The present worth of this investment is $3339. Yogajothi should buy the
    house.

    4.5
    Project
    A Æ to sell X division
    B Æ to buy Barco
    C Æ Get New Financing
    D Æ Expand in US

    Restrictions
    C is B is D is D is Feasible ?
    contingent on contingent on contingent on contingent on
    A B C D B or D A or C B Not(A)
    DN
    1 o
    2 o x No
    3 o x No
    4 o x No
    5 o o
    6 o o x No
    7 o o x x No
    8 o o
    9 o o x No
    10 o o x No
    11 o o o
    12 o o o x No
    13 o o o x No
    14 o o o
    15 o o o o x No

    Then we select the Alternatives: DN do nothing


    1 A
    5 AB
    8 BC
    11 ABC
    14 BCD
    4.7

    (a) PW = −28 000 + 5000(P/A, 15%, 10) + 3000(P/F, 15%, 10)


    = −28 000 + 5000(5.0188) + 3000(0.24718)
    = −2164.46
    The present worth of the project is about −$2164.

    (b) AW = −28 000(A/P, 15%, 10) + 5000 + 3000(A/F, 15%, 10)


    = −28 000(0.19925) + 5000 + 3000(0.04925)
    = −431.25
    Or using the result of part (a):
    AW = PW(A/P, 15%, 10) = −2164.46(0.19925) = −431.27
    The annual worth of the project is about −$431.

    (c) FW = −28 000(F/P, 15%, 10) + 5000(F/A, 15%, 10) + 3000


    = −28 000(4.0456) + 5000(20.304) + 3000
    = −8756.8
    Or using the result of part (a):
    FW = PW(F/P, 15%, 10) = −2164.46(4.0456) = −8756.54
    The future worth of the project in 10 years is about −$8757.

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