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# Calculating Growth rate and purchase value of a machine

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1.

a.Sales in 2000 were 125 million; sales in 2005 were 275. What is the "percent of sales" in 2005 as compared to 2000?

b.What is the percent increase of sales from 2000 to 2005.

c.What would 2005 sales have to be to make the percent change 150%?

2.

a.Using the CPI factors find the "real" sales (in millions)

Year Nominal CPI Real
2000 345 123
2001 350 130
2002 355 135
2003 378 151

b.What is happening to sales in nominal terms? In real terms?

c.What would the nominal sales in 2003 have to be for real sales in 2003 to be the same as real sales in 2000?

3.The book value of a machine is \$21,000 at the end of its fourth year of life and \$14,000 at the end of its sixth year of life. What was the purchase value of the machine, assuming that "straight line depreciation" is being used.

("Straight line depreciation" means the decline in value is a straight line, so find the equation of the straight line connecting the two points. The "purchase price" would then be the "y-intercept.")

4.What are the "four levels of measurement" of data? Give an example of each.

5.Indicate the better choice and explain why you would choose it. (You do not have to do the calculations - unless you want to.)

What effect does the rate of return, i, have on:

The present value of a lump sum to be paid in the future

The future value of a single payment at the start of a time period

The present value of a stream of payments

6. You are offered a home mortgage of \$200,000, 30 year term at 6% but for the first five years your payment would be \$800 per month. After five years payments will be recomputed at the 6% rate on the remaining balance to pay off the loan in the remaining 25 years.

What would the payments be on the loan at the 6% rate?

What will the mortgage amount be at the end of five years at the \$800 per month payment?

After the five year teaser payment years what will the payments be to pay off the new mortgage in the remaining 25 years?

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#### Solution Preview

Solution:

a. Sales in 2000 were 125 million; sales in 2005 were 275. What is the "percent of sales" in 2005 as compared to 2000?

Sales in 2000=\$125
Sales in 2005=\$275
% sales in 2005=275/125*100=220%

What is the percent increase of sales from 2000 to 2005?

Increase in sales=275-125=150
% increase in sales=150/125=120%

c. What would 2005 sales have to be to make the percent change 150%?
Sales in 2005=125+150% of 125
=125+1.5*125
=\$312.5
2. a. Using the CPI factors find the "real" sales (in millions)

Year Nominal CPI Real
2000 345 123 345/123*100=280.49
2001 350 130 350/130*100=269.23
2002 355 135 355/135*100=262.96
2003 378 151 378/151*100=250.33

b. What is happening to sales in nominal terms? In real terms?

Sales in nominal terms are increasing. While in real terms, these are decreasing.

c. What would the nominal sales in 2003 have to be for real sales in 2003 to be the same as real sales in 2000?

Real sales in 2003=Real sales in 2000=\$280.49 million
Nominal sales in 2003=Targeted real sales*CPI=280.49*151/100=\$423.54 million

3. The book value of a machine is \$21,000 at the end of its fourth year of life and \$14,000 at the end of its sixth year of life. What was the purchase value of the machine, assuming that ...

#### Solution Summary

There are 6 problems. Solutions to these problems explain the steps in finding growth rates, real value of sales and purchase value of machine. Solution also explains four level of measurements. Solution to last problem explains the steps to calculate amount of equal periodic payments for a loan repayment.

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