Answer To: Charles Sturt University Subject Outline ACC XXXXXXXXXXS I-9 February 2018-Version 1 Page of 1 22...
Shakeel answered on Apr 08 2020
Answer 1
(a)
End of year
Cash flows ($)
PV@9%
1
400
400/1.09 =
366.97
2
800
800/1.092 =
673.34
3
500
500/1.093 =
386.09
4
400
400/1.094 =
283.37
5
300
300/1.095
194.98
Total
1,904.76
Therefore payment for investment opportunity = $1,904.76
(b)
Loan amount = $100,000
Interest rate per annum = 10%
Interest rate per quarter = 10/4 = 2.50%
No. of payments = 20
Let the quarterly payment be X
Therefore,
X*PVIFA (2.50%, 20)*(1 + 0.0250) = 100,000
X*15.5892*1.025 = 100,000 [PVIFA (2.50%, 20) = 15.5892 is taken from PVIFA table]
X*15.9789 = 100,000
X = $6,258.24
Hence, quarterly payment would be $6,258.24
(c)
Lottery prize = $200,000
Interest rate per annum compounded monthly = 10%
Monthly interest rate = 10/12 = 0.83%
No. of monthly payment = 150
First payment is due exactly after 2 years i.e. first payment is made at the beginning of 3 years.
The value of prize at the end of 2nd year = 200,000*(1 + 0.0083)24
= $244,078.19
Let the monthly payment be X
Since, the first monthly payment is made at the end of 2 years i.e. just at the beginning of 3rd yr
Therefore,
X*PVIFA (0.83%,150)*(1+0.0083) = 244,078.19 [PVIFA (0.83%, 150) = 15.5892 is
taken from PVIFA table]
X*85.44*1.0083 = 244,078.19
X*86.1942 = 244,078.19
X = 244,078.19 / 86.1942
X = $2,833.20
Hence, the monthly payment would be $2,833.20
Answer 2
(i)
%
8%
6%
7%
Year
0
1
2
3
4
5
6
7
8
9
10
CF i
$0
$0
+$6,500
+$1,500
$0
$0
-$2,500
$0
$0
+$10,000
$0
(ii)
The value of discounted cash flows at the end of time t is calculated by using the formula
PVt = Ʃ (CFi) / (1 + r)t
While the value of accumulated cash flows at time t is calculated by using the formula
AVt = Ʃ (CFi) *(1 + r)t
Hence,
Value of the cash flow at Time 1 = 0/(1+0.08)
= 0
Value of the cash flow at Time 5 = 0/(1+0.08) + 6,500/(1+0.08)2 + 1,500/(1+0.06)3 + 0/(1+0.06)4 +
0/(1+0.06)5
= 0 + 5,572.72 + 1,259.43 + 0 + 0
= $6,832.15
Value of the cash flow at Time 10= 0/(1+0.08) + 6,500/(1+0.08)2 + 1,500/(1+0.06)3 + 0/(1+0.06)4 + 0/(1+0.06)5-2,500/(1+0.06)6 + 0/(1+0.06)7 + 0/(1+0.06)8 + 10,000/(1+0.07)9 + 0/(1+0.07)10
= 0 + 5,572.72 + 1,259.43 + 0 + 0 -1,762.40 + 0 + 0 + 5,439.34 + 0
= $10,509.08
Answer 3
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