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Future value, present value, installment, ROE

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1.What's the future value of $2,000 after 3 years if the appropriate interest rate is 8%, compounded semiannually?

2.You own an oil well that will pay you $25,000 per year for 8 years, with the first payment being made today. If you think a fair return on the well is 7%, how much should you ask for if you decide to sell it?

3. Suppose you borrowed $25,000 at a rate of 8% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?

4. During the latest year Berta Corp. had sales of $300,000 and a net income of $20,000, and its year-end assets were $200,000. The firm's total debt to total assets ratio was 40%. Based on the Du Pont equation, what was the firm's ROE?

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Solution Preview

1.What's the future value of $2,000 after 3 years if the appropriate interest rate is 8%, compounded semiannually?

FV = 2,000(1 + (0.08/2))3x2
= 2,530.64

2.You own an oil well that will pay you $25,000 per year for 8 years, with the first payment being made today. If you think a fair return on the well is 7%, how much should you ask for if you decide to sell it?

You have to use annuity due to find the fair value.

PVA = W x 1 - 1 where PVA is the present value
...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the future value of the deposit of $2,000, the present value of oil well, installment payback of loan, and Berta Corp's ROE.

$2.19
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