Numeracy Skills for Business Decisions

This numeracy assignment focuses on essential skills for business decision-making. Students solve problems related to calculating Net Present Value (NPV), compound interest, and probabilities. The examples provided illustrate the application of these concepts in a business context. The document also includes a reflective section where students discuss their understanding and areas for improvement.

Numeracy 2

TABLE OF CONTENTS
SECTION 1......................................................................................................................................1
Q3 Interest calculations..........................................................................................................1
Q4 Compound interest ...........................................................................................................1
Q5 Algebra.............................................................................................................................2
Q6 NPV..................................................................................................................................3
Q7 Graphs...............................................................................................................................3
Q8 Probability of playing cards..............................................................................................4
SECTION 2......................................................................................................................................5
TASK 1 ..................................................................................................................................5
Two real life examples...........................................................................................................5
TASK 3...................................................................................................................................7
Reflective................................................................................................................................7

SECTION 1
Q3 Interest calculations
A) Simple interest- I = PRT
= 55000 * 4/100 * 3
= 6600
B) Compound interest-
B = 55000 * (1 + 0.04 / 12)
= 4766.67
C) Semi-annually compound interest-
B = 55000 * (1 + 0.04 / 6)
= 9533.34
D) Quarterly compound interest -
B = 55000 * (1 + 0.04 / 0.25) / 12
= 5316.67
Q4 Compound interest
A) Annual compound interest-
= 160000 * (1 + 0.04 / 12)
= 13866.67
B) Rule 72= 72 / 4/1
= 1.5 years to double the investment at 4 % annual interest rate
C) Bank savings
Initial deposit = 3500
After, 10 years = 4266.50
= 4266.50 / 3500 ^ 1/10 = 1 + r
= 1.29 ^ 1/10 = 1 + r
= 0.129 - 1 = r
r = 1. 29 % interest rate
1

Q5 Algebra
A)
B) X - 4 = 20
X = 20 + 4 = 24
C) Y + 6 = 2Y
= 3Y = 6
= Y = 6 / 3
= 2
D) Table
1. y = 3 x + 6
= 3 * -4 + 6
= -12 + 6
= -6
2. y = 3 x + 6
= -15 + 6
= -9
3. y = 3 x + 6
= 0 + 6
= 6
4. y = 3 x + 6
= 12 + 6
= 18
5. y = 3 x + 6
= 24 + 6
= 30
6. y = 3 x + 6
= 36 + 6
= 42
2

Q6 NPV
Year Profit Depreciation net cash flow PV factor @ 7.5%
Discounted cash
inflow Cumulative
1 22000 27000 49000 0.930 45581.40 45581.4
2 35000 27000 62000 0.865 53650.62 107581.4
3 55000 27000 82000 0.805 66006.77 189581.4
4 60000 27000 87000 0.749 65145.65 276581.4
230384.43
Depn 27000 NPV 122384.43
NPV = Total discounted cash flow - Initial investment
= 230384.43 - 108000
= 122384.43
B) Medina Ltd. should proceed with the investment project as it has greater NPV of the project.
Usually, greater NPV is better for the company and as such the investment is 108000. While, its
NPV (Net Present Value) is 122384.43 and as a result, Medina Ltd. should proceed with the
project. It will provide greater profit which is the ultimate goal of the organisation.
Q7 Graphs
68 90 87 40 68
48 45 93 92 66
3

63 70 90 92 96
58 98 64 78 96
64 64 86 66 75
B ) Histogram
C)
Q8 Probability of playing cards
A) probability of getting an ace
There are 4 aces in a deck of playing cards. Total playing cards are 52.
4
1 2 3 4
0
20
40
60
80
100
120
68
90
87
40
68

= 4/52
B) probability of getting a spade
There are 13 spades in a deck of playing cards
= 13/52
C) probability of ace of spades
D) probability of ace or spade
There are 13 spades and 4 aces in a deck of playing cards
= 13 + 4 = 17
= 17 / 52
SECTION 2
TASK 1
Two real life examples
1. Compound interest -
Compound interest is termed as interest which is earned by combining principle amount
and interest amount earned. It is principal plus interest that is earned by any entity or persons or
group of persons. Let the real life problem be taken as an example to clarify the compound
interest.
I have open a savings account at bank with the balance $100 on January 1. The annual interest
rate is given at 5 %. How much have I earn in five years ?
The answer is very easy to understand, bank will give me 5 % as an interest rate annually which
comes to 105 at the end of year. Adding 5 % on the initial amount 100. If I left this 105 amount
in my account for earning another interest at 5 %, then in second year it comes to 105 * 1.05 =
110.25. This means that I have earned second year as well as first year interest combined. This is
known as compound interest. Then if same principle is followed in another seven years. It turns
out be like this:
Year Beginning balance ($) Interest received (in $) Ending balance ($)
5

3 110.25 5.51 115.76
4 115.76 5.79 121.55
5 121.55 6.08 127.63
6 127.63 6.38 134.01
7 134.01 6.7 140.71
This table shows that depositing just 100 in the bank, the balance at the end of seven
years turn out to be 140.71 which shows that I have done nothing but I have earned a interest of
40.71 by the bank in my account.
2. NPV (Net Present Value)-
NPV is the difference between present value of cash inflows and present value of
outflows. In simple words, NPV is the difference between inflows and outflows over a certain
period. This method is simple to use and provides useful insight with reference to choose a
project that will be profitable or not to the business. Greater NPV, better for the company to
invest in the project. The real life example is a business is planning to invest in machinery.
Machinery 1 and Machinery 2. Provide the best of two to management.
Machinery 1 with investment of 170 and a scrap value of 20. Cost of capital at 20 %
Year Profit Depreciation
net cash
flow
PV factor @
20%
Discounted cash
inflow
1 65 25 90 0.833 75
2 65 25 90 0.694 62.5
3 65 25 90 0.579 52.08
4 55 25 80 0.482 38.58
5 55 25 80 0.402 32.15
6 45 25 70 0.335 23.44
6

150000 350
Total
discounted
cash inflow 283.76
25 II 170
-
56.243355624
1 58.33 NPV 113.76
Machinery 2 with investment of 170 and a scrap value is nil.
Year Profit
Depreciatio
n
Net cash
flow
PV factor @
20%
Discounted cash
inflow
1 25 28.33 53.33 0.833 44.4
2 35 28.33 63.33 0.694 44.0
3 45 28.33 73.33 0.579 42.4
4 75 28.33 103.33 0.482 49.8
5 85 28.33 113.33 0.402 45.5
6 65 28.33 93.33 0.335 31.3
170000 330
Total
discounted
cash inflow 257.49
7

28.33 II 170
329.97 32.35% NPV 329.98
From the example, Machinery 2 is successful and hence, business should invest in this as it has
greater NPV.
TASK 3
Reflective
I feel that about NPV, I'm confident as I have how to calculate it and this is an important
investment appraisal technique which is quite helpful to business. It helps business to overcome
the problem of selecting best among the alternatives that will yield better results to it. Higher the
NPV, better for the organisation to take decision regarding investment in the particular project.
I'm able to calculate NPV and pretty much sure that I will be able to solve with great ease.
However, while calculating power and roots, I face difficulty and not able to produce effective
results and this I have to improve so that I may feel confident about it to solve with much ease.
While, computing compound interest, I face problem while calculating compound interest
quarterly and this I have to improve.
I need improvement in solving problems of interest calculations which are related to
compound interest. While, calculating compound interest quarterly, I face difficulty and need to
improve on in this so that I may gain efficiency with in solving compound interest problems. I
need to have improvement in calculating annual compound interest as well. Moreover, I need to
have improvement in computing probabilities. I face issues while, computing probabilities from
a deck of playing cards. For this, I need improvement so that I may be able to understand the
formula and logic behind it. I can calculate simple probabilities but not able to compute mixed
probabilities.
The numeracy assignment is analysed and students are able to perform quite
satisfactorily. They have made good contribution in the class and have performed good. The
contribution in the class is good as students have understood the power rules and roots. They
have understood calculating probabilities as well. They are able to make good computation of
NPV method and also of compound interest simultaneously. They have understood and are able
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