Assignment on Business Loan
Added on 2021-04-24
11 Pages1732 Words74 Views
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Running Head: FINANCE FOR BUSINESS1Finance for Business: Solutions to Problems
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FINANCE FOR BUSINESS2Table of ContentsChapter 5: Introduction to Valuation: The Time Value of Money..........................................................3Chapter 6: Discounted Cash Flow Valuation..........................................................................................4Chapter 7: Interest Rates and Bond Valuation......................................................................................7Chapter 8: Stock Valuation....................................................................................................................8References...........................................................................................................................................11
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FINANCE FOR BUSINESS3Chapter 5: Introduction to Valuation: The Time Value of MoneyQuestion 3Calculating Present Values [LO2]: For each of the following, compute the present value:SolutionIn this problem, present values have to be calculated for the given four cases. For eachof the given cases, number of years, interest rate and future values are given. Present values can be calculated by using PV function in excel. In PV function, nper = number of periods, rate = rate per period and fv = future value are entered to calculate respective present values. In first case, nper = 13, rate = 9% and fv = 15451 are used to obtain pv = - 5039.79. Negative sign signifies cash outflow. Present values can be calculated in similar way for other three cases.YearsInterest RateFuture Value ($)Present Value ($)139%15451.005039.7947%51557.0039332.592924%886073.001730.784035%550164.003.37Question 4Calculating Interest Rates [LO3]: Solve for the unknown interest rate in each of the following:
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FINANCE FOR BUSINESS4SolutionIn this problem, interest rate is to be calculated for the given four cases. For this purpose, rate function is used in excel. In rate function, nper = number of periods, pv = present value and fv = future value are entered as inputs. In first case, nper = 4 , pv = 181 andfv = - 297 are used to calculate rate = 13.18%. Similarly, other cases can also be evaluated.Present Value ($)YearsFuture Value ($)Interest Rate181429713.18%3351810806.72%48000191853827.37%403532553161810.86%Chapter 6: Discounted Cash Flow ValuationQuestion 2Present Value and Multiple Cash Flows [LO1]: Investment X offers to pay you $4,700 per year for eight years, whereas Investment Y offers to pay you $6,700 per year for five years. Which of these cash flow streams has the higher present value if the discount rate is 5 percent? If the discount rate is 15 percent?Solution:Investment X consist series of eight cash inflows of $4700 per year, whereas Investment Y pays $6700 per year for five years. Present values of are calculated for each of the years using discount rates 5 % and 15 % for both the cash inflows. Sum of these present values is taken to calculate the present value of cash flow streams. As can been seen, when 5 % discount rate is taken, higher present value is obtained for Investment X. However, when 15 % discount rate is used higher present value is obtained for Investment Y.a) Investment X: Present value at 5%
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