## An advertising firm needs to borrow $300,000 from a local bank at an interest rate of 8% over nine years. What is the required equal payment to retire the loan in nine years?

An advertising firm needs to borrow $300,000 from a local bank at an interest rate of 8% over nine years. What is the required equal payment to retire the loan in nine years?

Complete the following numbered problems using an Excel spreadsheet. You must show your work to get full credit. Each student is responsible for completing their own response to the problems.

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1. Consider the cash flows for the following two projects:

n A B

0 -$10,000 $7,000

1 $2,000 -$1,500

2 $X -$2,500

3 $2,000 -$2,000

4 $4,000 -$2,000

(a) For project A, find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i=10%

(b) Would you accept project B at i=11% based on AE criterion?

2. Joey is considering buying a 2016 Audi RS7 costing $108,900 and finds that the retaining values of the vehicle over the next six years are as follows:

Percent of the total value retained after 36 months: 60%

Percent of the total value retained after 72 months: 30%

If his interest rate is 3% compounded annually, what is the ownership cost of the vehicle over 3 years? 6 years?

3. Consider the following investments:

Period Project Cash Flows

n A B C D

0 $-6,000 $-8,000 $-10,000 $-13,000

1 $1,000 $5,000 $2,500 $0

2 $2,000 $2,000 $2,500 $0

3 $3,000 $1,000 $2,500 $7,000

4 $4,000 $1,000 $2,500 $14,000

Compute the equivalent annual worth of each project at i=10%, and determine the acceptability of each project.

4. An advertising firm needs to borrow $300,000 from a local bank at an interest rate of 8% over nine years. What is the required equal payment to retire the loan in nine years?

5. Y.I.H.D. Manufacturing just purchased a new machine to speed up production on their assembly line. This machine costs $200,000. Because of the specialized function it performs, its useful life is expected to be five years. At the end of its useful life, its salvage value is estimated to be $30,000. What is the capital cost for this investment if the firm’s interest rate is 10%?

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Formatting:

Text Size: All of the text in this assignment needs to be set in 10 or 12-point size. Please resist the temptation to mix and match point sizes. If you doubt your applications intentions, just select all of your text and insure that it is in 10 or 12-point size.

Margins: The right and left side can be set for ½” (0.5) margins. Set the top and bottom margins to one (1”). The only text that ends up on the outside of the one-inch margin is the page number.

Spelling/Grammar Checking: Remember to do your spelling and grammar checking before turning your assignments in. When doing the spelling/grammar checking keep in mind that some words such as mush and must, woods and words, or here and cow, will not be caught by either check. To correct these problems, you will need to proofread your work.

Page Numbers: Any homework that has more than one page needs to have page numbers on it. Please place your page numbers on the bottom of the page. In MS Excel, use the footer selection and place the page number in the bottom center or bottom right of the page.

Content:

Problem Number: List each problem’s number on the left, placing a blank cell above it.

State or summarize the Problem: For this assignment,you may state the problem either exactly as it appears in the book or you may summarize the all the values, terms and percentages. This is to help insure that you use the correct values in your calculations. If you chose to summarize, this will count as stating the given. You will need to break long text up between cells so that you will stay with-in the printing boundaries of the page.

State the Given: Skip one cell and write the word “Given:” Follow that with what is known from the problem. If the problem has multiple parts, place the letter of each part before the “Given”. If the problem has a table, then reproduce the table.

Solve the Problem: Show your work in solving the problem

Problem Tip:

Each problem is tied directly back to a specific area covered in the chapter, if you are having difficulties with a problem, be sure to re-read that section.

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