Financial Decisions for Int’L Managers Chapter 4

Chapter 4: (4-9)Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. a. An initial $500 compounded for 1 year at 6% $530. 00 b. An initial $500 compounded for 2 years at 6% $561. 80 c. The present value of $500 due in 1 year at a discount rate of 6% $471. 70 d. The present value of $500 due in 2 years at a discount rate of 6% $445. 00 (4-11)To the closest year, how long will it take $200 to double if it is deposited and earns the following rates? a. 7% 10 years b. 0% 7 years c. 18% 4 years d. 100% 1 year (4-12)Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities. a. $400 per year for 10 years at 10% $6,374. 97 b. $200 per year for 5 years at 5% $1,105. 13 c. $400 per year for 5 years at 0% $2,000. 00 d. Now rework parts a, b, and c assuming that payments are made at the beginning of each year, that is they are annuities due. 1. $7,012. 61 2. $1,160. 38 3. $2,000. 00 (4-13) Find the present value of the following ordinary annuities. a. 400 per year for 10 years at 10% $2,457. 83 b. $200 per year for 5 years at 5 % $865. 90 c. $400 per year for 5 years at 0% $2,000. 00 d. Now rework parts a, b, and c assuming that payment are made at the beginning of each year; that is, they are annuities due. 1. $2,703. 61 2. $909. 19 3. $2,000. 00 (4-14)Find the present values of the following cash flows streams. The appropriate interest rate is 8%. YearCash Stream ACash Stream B 1$100$300 2400400 3400400 4400400 5300100 PVA = $1,251. 25 PVB = $1,300. 32 b. What is the value of each cash flow stream at a 0% interest rate? PVA = $1,600. 0 PVB = $1,600. 00 (4-15)Find the interest rate (or rates of return) in each of the following situations. a. You borrow $700 and promise to pay back $749 at the end of 1 year. 7% b. You lend $700 and receive a promise to be paid $749 at the end of 1 year. 7% c. You borrow $85,000 and promise to pay back $201,229 at the end of 10 years. 9% d. You borrow $9,000 and promise to make payments of $2,684. 80 at the end of each of the next 5 years. 15% (4-20) a. Set up an amortization schedule for a $25,000 loan to be repaid in equal installments at the end of each of the next 5 years.

The interest rate is 10%. PMT = $6,594. 94 Interest1 = $2,500 Interest2 = $2,090. 51 b. How large must each annual payment be if the loan is for $50,000? Assume that the interest rate remains at 10% and that the loan is still paid off over 5 years. $13,189. 87 c. How large must each payment be if the loan is for $50,000, the interest rate is 10%, and the loan is paid off in equal installments at the end of each of the next 10 years? This loan is for the same amount as the loan in part b, but the payments are spread out over twice as many times periods.

Why are these payments half as large as the payments on the loan in part b? $8,137. 27 The payments are less in part c problem compared to part b, because the time period is spread out to 10 years instead of 5, which puts a lower payment amount each year. Part b is paying off the same amount of loan in half the time period. (4-21)Sales for Hanebury Corporation’s just-ended year were $12 million. Sales were $6 million 5 years earlier. a. At what rate did sales grow? I = 15% b. Suppose someone calculated the sales growth for Hanebury in part a as follows: “Sales doubled in 5 years.

This represents a growth of 100% in 5 years; dividing 100% by 5 results in an estimated growth rate of 20% per year. ” Explain what is wrong with this calculation. This type of calculation is incorrect. First of all, the sales growth of 100% is incorrect for the 5 years. Sales doubled, which automatically does not mean it’s a 100% sales growth for that time period. In the calculation of finding the sales growth interest per year would be FV = PV (1+I)N. So, then I = the sales growth percentage per year.