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# The Time Value of Money

### Finance: time value of money, the dollar, bond ratings, debt vs equity, cost of capital

Is a dollar today worth more than a dollar tomorrow? Why or why not? What is the relationship between present and future value? What impact does a company's bond rating have on its cost of capital? What is the relationship between interest rates and bond prices? Should a company have more debt or more equity in its c

### Northeast Company: Diluted earnings per share calculation

Northeast Company has 200,000 shares of common stock and 50,000 warrants outstanding. Each warrant entitles its owner to buy one share at a price of \$20 before 2010. The firm's basic earnings per share is \$2.25. What is the firm's diluted earnings per share? \$1.15 \$1.25 \$1.50 \$1.80 \$2.00

### Future Value

If you invest \$750 every six months at 8% compounded semi-annually, how much would you accumulate at the end of 10 years? a. \$10,065 b. \$10,193 c. \$22,334 d. \$21,731

### Time value of money problem

Old Alfred Road, who is well-known to drivers on the Maine Turnpike, has reached his seventieth birthday and is ready to retire. Mr. Road has no formal training in finance but has saved his money and invested carefully. Mr. Road owns his home?the mortgage is paid off?and does not want to move. He is a widower, and he wants t

### Calculations for an ordinary annuity vs an annuity due

CASE AMOUNT OF ANNUITY INTEREST RATE DEPOSIT PERIOD (YR) A \$2,500 8% 10YRS B 500 12 6 C 30,000 20 5 D 11,500 9

### Compound interest , present value, future values: What amount will the following investments accumulate? What is the present value of the following future amounts?

Please complete the following calculations showing all work. *Compound Interest - what amount will the following investments accumulate? 1) \$5,000 invested for 10 yrs at 10% compounded annually 2). \$8,000 invested for 7 yrs at 8% compounded annually 3). \$775 invested for 12 years at 12% compounded annually 4). \$

### Various time value solutions: Aaron Brown Corporation

1. On January 1, 2007, Aaron Brown Corporation sold a building that cost \$250,000 and that had accumulated depreciation of \$100,000 on the date of sale. Brown received as consideration a \$275,000 noninterest-bearing note due on January 1, 2010. There was no established exchange price for the building, and the note had no ready m

### Future financial challenges and opportunities at US Airways

This solution provides the learner with challenges and opportunities that US Airways may face in the coming years that would potential require financial management and analysis. Although this solution specifically utilizes US Airways as an example, the concepts and ideas can be utilized to aid in the understanding of current mac

### An Application of the Time Value of Money

Question: Highlight some of the key components of the Time Value of Money. Identify at least one financial application of the TVM employed by each of the following businesses: a. Commercial banks b. Credit card financial service companies c. Insurance companies d. State governments-lotteries e. Retirement plan financi

### Time Value of Money

1. Bozeman's Best Inc. is establishing a pension plan for its sole employee. He will receive credit for 12 years of prior service and is expected to work 18 years until retirement. After retirement, he is expected to collect annual pension payments for 17 years. His current salary is \$75,000 with estimated future pay increase

### Time Value of Money: Compounding and Discounting

1) How much will you have in 5 years if you put \$10,000 into an account that earns 6% annually? 2) What is the present value of \$100,000 you will receive in 10 years if you are using an 8% discount rate? 3) How much will you have in 10 years if you invest \$1,000 a year starting today at an interest rate of 7%? 4) Wh

### Time value multiplier: On May 1, 2004 a company purchased a new machine which it does not have to pay for until May 1, 2006. The total payment on May 1, 2006 will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor? a. Future value of annuity of 1 b. Future value of 1 c. Present value of annuity of 1 d. Present value of 1

On May 1, 2004 a company purchased a new machine which it does not have to pay for until May 1, 2006. The total payment on May 1, 2006 will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor? a. Future value of

### Future Value of a Lump Sum

How do each of the following increase the future value of a lump sum investment made today assuming that all interest is reinvested and the interest rate is also positive: Interest rate Amount of the lump sum Frequency of the interest payments Length of the investment period

### NPV: Doherty Industries wants to invest in a new computer system. The company only wants to invest in one system, and has narrowed the choice down to System A and System B. System A requires an initial cost of \$100,000 and then generates positive after-tax cash flows of \$60,000 at the end of each of the next two years. The system can be replaced every two years with the cash inflows and outflows remaining the same. System B also requires an initial cost of \$100,000 and then generates positive after-tax cash flows of \$42,500 at the end of each of the next three years. System B can be replaced every three years. The company needs a computer system for the 6-year period, after which time the current owners plan on retiring and liquidating the firm. The company's cost of capital is 11 percent. Use either the replacement chain approach or the equivalent annual cash flow approach and show which system should be chosen.

Doherty Industries wants to invest in a new computer system. The company only wants to invest in one system, and has narrowed the choice down to System A and System B. System A requires an initial cost of \$100,000 and then generates positive after-tax cash flows of \$60,000 at the end of each of the next two years. The system

### Value of Money in a Loan Situation

Shanghai Winters, one of BC's biggest customers, has requested a loan with favorable terms. Sheila and Ed decide to offer this customers a \$70,000 five year note receivable. You recommend that since this is your best customer, they offer a 4% interest rate rather than the 7% going rate. Using your knowledge of the time valu

### Time value of money and discount rates are examined for lottery winnings.

You just won the lottery that promises to pay you \$1,000,000 exactly 10 years from today. Because the \$1,000,000 payment is guaranteed by the state in which you live, opportunitites exist to sell the claim today for an immediate single cash payment. A. What is the least you will sell your claim for if you can earn the follo

### Professional Workplace Dilemma

Please help so I can write this paper: Prepare a paper analyzing a professional dilemma and values conflict that you experienced before you began your major course of study or during your program of studies at the University of Phoenix. Be sure to complete all three sections of the assignment. a. Describe the experience:

### Cash Budget (Sharpe Corporation) and TVM Problems

Please view the attachment as well to view these questions in proper formatting. Some of the required charts did not copy over well. 1. (Cash budget) The Sharpe Corporation's projected sales for the first eight months of 2004 are as follows: January \$90,000 May \$300,000 February 120,000 June 270,000 March 135,000 Jul

### Interest, value of annuity, mortgage payment

Please see the attached file. 1. Find the simple interest for \$4902 at 9.5% for 11 months. 2. Find the compound amount for \$312.45 at 6% compounded semiannually for 16 years. 3. Find the amount of interest earned by depositing \$12,903.45 at 10.37% compounded quarterly for 29 quarters. 4. Find the present value of \$17

### Present Value of Deposits

You plan on depositing \$10,000 a year in real terms into your investment account for the next 4 years. The relevant nominal discount rate is 7.5 percent and the inflation rate is 4.2 percent. What are these deposits worth in today's dollars?

### Present Value..

31. You have a such-contracting job with a local manufacturing firm. Your agreement calls for annual payment \$82,000 for the next 3 years. At a discount rate of 9.5%, what is this job worth to you today?

### If Lee discounts these payments at 8%, what is the contract worth to him today?

27. Lee Childs is negotiating a contract to do some work for Hass Corp. over the next five years. Hass proposes to pay Lee \$10,000 at the end of each of the third, fourth, and fifth years. No payments will be received prior to that time. If Lee discounts these payments at 8%, what is the contract worth to him today?

### Time Value of Money and Retirement

How would you explain the use of time value of money (TVM) in business? What considerations are made when calculating TVM? How can you use TVM to create your own, or someone else's, retirement plan?

### Time Value of Money Questions- Future Value of projects, Present Value of projects 1) The Chinese government is conducting an auction for a joint project involving oil exploration. First, find out the future value, on a per dollar basis, of each of the two interest payment options. Next, compute the future value of the \$47 million bid using each option, and determine which is bigger. 2) Blue Mesa Oil Company is considering two projects. Compute the present value of each project using annual compounding, and report on the relative values and the difference between the two.

Please see the attached file. One The Chinese government is conducting an auction for a joint project involving oil exploration. Because of a desire for U.S. dollars, they require the winning bidder to make an up-front, one-time payment for the rights to join the project and supervise the work. The Chinese government will u

### The yield curve is

50. The yield curve is a. inverted when short term rates are higher than long term rates b. normal when it slopes upward to the right c. a plot of interest rates versus term, also called the term structure of interest rates d. all of the above 51. The federal government can always avoid default on its issues because of it

### Future Value - To supplement your planned retirement in exactly 42 years

P3-27. To supplement your planned retirement in exactly 42 years, you estimate that you need to accumulate \$220,000 by the end of 42 years from today. You plan to make equal annual end-of-year deposits into an account paying 8 percent annual interest. a. How large must the annual deposits be to create the \$220,000 fund by the

### Present Value of a Lump Sum - Gina Coulson

P3-7. Gina Coulson has just contracted to sell a small parcel of land that she inherited a few years ago. The buyer is willing to pay \$24,000 at closing of the transaction or will pay the amounts shown in the following table at the beginning of each of the next five years. Because Gina doesn't really need the money today, she pl

### Present Value of a Lump Sum: Robert Williams

P3-6. Robert Williams is considering an offer to sell his medical practice, allowing him to retire five years early. He has been offered \$500,000 for his practice and can invest this amount in an account earning 10 percent per year, compounded annually. If the practice is expected to generate the following cash flows, should Ro

### Present Value of a Lump Sum.

P3-5. Robert Blanding's employer offers its workers a two-month paid sabbatical every seven years. Robert, who just started working for the firm, plans to spend his sabbatical touring Europe at an estimated cost of \$25,000. To finance his trip, Robert plans to make six annual deposits of \$2,500 each, starting one year from now,

### Present Value: Amount Accumulated and Interest Earned

P3-1. You have \$1,500 to invest today at 7 percent interest compounded annually. a. How much will you have accumulated in the account at the end of the following number of years? 1. Three years 2. Six years 3. Nine years. b. Use your findings in part (a) to calculate the amount of interest earned in: