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# Financial Analysis of Investment Purchases

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1. Mario just invested 12K into an interest bearing account that yields 11.0% Inflation is 6.6%
a) What is the actual dollar value of Mario's investment be after 9 years
b) What is the inflation-free interest rate (round to the nearest .01 percent)
c) What will the constant dollar value of Mario's investment be after 9 years (using today's dollars as the reference dollar)?
d) Show that the actual dollar value and the constant dollar value of Mario's investment 9 years from now represent the same amount of money

2. XY computers bought an array processor for doing some high powered computational fluid dynamics calculations. The array processors has an acquisition cost of \$22,5000, a 5 year useful life and an expected salvage value of \$500 Use the format show in table 14.2 to show depreciation year, depreciation amount and book value.

3. Two years later XY Computers bought an even higher powered array processor. This processor has an acquisition cost of \$40000 a 10 year useful lie and an expected salvage value of \$2,000. Use the format show in table 14.2 to show depreciation year, depreciation amount and book value.
a) Show straight line depreciation
b) Show 150% declining balance depreciation.
c) Show MACRS depreciation.

#### Solution Preview

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1 interest 11.0%
Inflation 6.6%
a Real interest rate = (1+nominal interest rate) / (1+inflation rate) = -1
I' = [(1+0.11)/(1+0.066)] - 1
i' ...

#### Solution Summary

The solution provides a financial analysis of investment purchases.

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