Wk 3 – Set 1, Part 1

Week 3 Financial Exercises

Problem Set 1, Part 1

Complete the following problems using either the financial functions in Excel or the Present Value and Future Value formulas as noted below:

PV = FV * 1 / (1+i)^n FV = PV * (1+i)^n

(1) If you wish to have $60,000 in 8 years, how much do you need to deposit in the bank today if the account pays an interest rate of 9%?

Answer:

(2) What will $110,000 grow to be in 9 years if it is invested today at 11%?

Answer:

(3) You would like to have $200,000 in a college fund in 15 years. How much do you need today if you expect to earn 12% while you are investing to pay for your child’s college?

Answer:

(4) You have been offered $3,000 in 4 years for providing $2,000 today into a business venture with a friend. If interest rates are 10%, is this a good investment for you?

Answer:

(5) What will $82,000 grow to be in 11 years if it is invested today at 8% and the interest rate is compounded monthly?

Answer:

(6) How many years will it take for $136,000 to grow to $468,000 if it is invested in an account with an annual interest rate of 8%

Answer:

(7) At what interest rate must $112,000 be invested so that it will be worth $392,000 in 14 years?

Answer:

&”Arial,Regular”&10 Wk 2 Financial Exercises – Part 1 HCS/385 v4 Page &P of &N

&”Arial,Regular”&10HCS/385 v4

&”Arial,Regular”&8Copyright© 2020 by University of Phoenix. All rights reserved.

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Wk 3 – Set 1, Part 2

Week 3 Financial Exercises

Problem Set 1, Part 2

Complete the following problems:

(1) Calculate the Net Present Value (NPV) of the following cash flow stream if the required rate is 12%:

Year 0 1 2 3 4 5

Cash Flow (230,000) 60,000 60,000 60,000 60,000 60,000

Is this a good project for the business to accept? Explain why or why not.

Answer:

(2) Calculate the Net Present Value (NPV) of the following cash flow projections based on a required rate of 10.5%:

Year 0 1 2 3 4

Cash Flow (120,000) 35,000 47,500 55,000 62,000

Is this a good project for the business to accept? Explain why or why not.

Answer:

(3) A company needs to decide if it will move forward with two new products that it is evaluating. The two initiatives have the following cash flow projections:

Project A

Year 0 1 2 3 4

Cash Flow -800,000 220,000 265,000 292,000 317,000

Project B

Year 0 1 2 3 4 5

Cash Flow -650,000 175,000 175,000 175,000 175,000 175,000

Based on the risk of each project, the company has a required rate of return of 11% for Project A and 11.5% for Project B. The company has a $1.5 million budget to spend on new projects for the year. Should the company move forward with one, both, or neither of the two new products? Show your work to support your answer.

Answer:

(4) Calculate the internal rate of return (IRR) of the following cash flows:

Year 0 1 2 3 4 5 6 7

Cash Flow (1,650,000) 330,000 365,000 380,000 415,000 405,000 370000 294,000

Answer:

(5) If a company has a required rate of return of 15%, should the following project be accepted based on these expected cash flows below?

Year 0 1 2 3 4 5 6

Cash Flow (274,000) 68,000 73,000 76,500 78,000 82,500 77,000

Please explain why or why not the company should move forward with this endeavor.

Answer:

(6) Based on the investor expectations of earning at least 12%, should this projected below be completed?

Year 0 1 2 3 4 5 6

Cash Flow (133,000) 37,000 42,750 44,000 46,500 82,500 77,000

Please explain why or why not the company should move forward with this endeavor.

Answer:

&”Arial,Regular”&10Wk 2 Financial Exercises – Part 2 HCS/385 v4 Page &P of &N

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&”Arial,Regular”&8Copyright© 2020 by University of Phoenix. All rights reserved.

&”Arial,Regular”&8Copyright© 2020 by University of Phoenix. All rights reserved.

Wk 3 – Set 2, Part 1

Week 3 Financial Exercises

Problem Set 2, Part 1

Using the table below, describe the types of budgets. In your description, include: • The objective of the budget • How the budget assists an organization in managing its financial activities • What types of data need to be included in that specific budget

Type of Budget Description

Cash Flow

Operating

Sales

Static

Financial

Wk 3 – Set 2, Part 2

Week 3 Financial Exercises

Problem Set 2, Part 2

Complete the following problems using the following ratios:

Sales level at which operating income is zero

o If sales above breakeven, then profit

o If sales below breakeven, then loss

o Fixed expenses = total contribution margin

Total sales = total expenses

Break Even Point: Unit Sold = Fixed expenses + Operating Income / Contribution Margin per unit

Break Even Point: Sales $ = Fixed expenses + Operating Income / Contribution Margin Ratio

(1) Calculate the break even number of units if the fixed expenses are $7,000 and the contribution margin is $14 per unit.

Answer:

(2) Calculate the break even sales dollars if the fixed expenses are $7,000 and the contribution ratio is 40%.

Answer:

(3) Calculate the break even number of units with a target profit of $120,000 if the fixed expenses are $15,000 and the contribution margin is $60 per unit.

Answer:

Wk 3 – Set 2, Part 3

Week 3 Financial Exercises

Problem Set 2, Part 3

Complete the following problems:

(1) How much will you have saved after 6 years by contributing $1,200 at the end of each year if you expect to earn 11% on the investment?

Answer:

(2) A business owner plans to deposit his annual profits in an investment account earning a 9% annual return. If the owner starts with their first deposit today for $22,000 and expects to make the same profit for the next 7 years, how much will be saved for retirement at that point?

Answer:

(3) An investor plans to invest $500 a year and expects to get a 10.5% return. If the investor makes these contributions at the end of the next 20 years, what is the present value of this investment today?

Answer:

(4) What is the present value (PV) of a 12-year lease arrangement with an interest rate of 7.5 percent that requires annual payments of $4,250 per year with the first payment being due now?

Answer:

(5) A recent college graduate hopes to have $200,000 saved in their retirement account 25 years from now by contributing $150 per month in a 401(k) plan. The goal is to earn 10% annually on the monthly contribution. Will they have the $200,000 at the end of the 25 years?

Answer:

Wk 4 – Signature Assignment: Financial Performance Calculations