# What is the present value of the following future amounts

5-4B. (Present value) What is the present value of the following future amounts?

a. $800 to be received 10 years from now discounted back to the present at 10 percent

b. $400 to be received 6 years from now discounted back to the present at 6 percent

c. $1,000 to be received 8 years from now discounted back to the present at 5 percent

d. $900 to be received 9 years from now discounted back to the present at 20 percent

5-9B. (Compound interest with nonannual periods)

a. Calculate the future sum of $6,000, given that it will be held in the bank five years at an

annual interest rate of 6 percent.

b. Recalculate part (a) using a compounding period that is (1) semiannual and

(2) bimonthly.

c. Recalculate parts (a) and (b) for a 12 percent annual interest rate.

d. Recalculate part (a) using a time horizon of 12 years (annual interest rate is still 6 percent).

e. With respect to the effect of changes in the stated interest rate and holding periods on

future sums in parts (c) and (d), what conclusions do you draw when you compare these

figures with the answers found in parts (a) and (b)?

15-1B. (Break-even point) Roberto Martinez is the chief financial analyst at New Wave

Pharmaceuticals (NWP), a company that produces a vitamin claimed to prevent the common

cold. Roberto has been asked to determine the company's break-even point in units. He obtained

the following information from the company's financial statements for the year just ended. In

addition, he found out from NWP's production manager that the company produced 40 million

units in that year. What will Roberto determine the break-even point to be?

Sales $20,000,000

Variable costs __1_6_,0_0_0_,_0_0_0

Revenue before fixed costs $ 4,000,000

Fixed costs ___2_,4_0_0_,_0_0_0

EBIT __$____1__,6__0__0__,__0__0__0

#### Solution Preview

5-4B. (Present value) What is the present value of the following future amounts?

a. $800 to be received 10 years from now discounted back to the present at 10 percent

PV = FV/(1 + r)n where PV is the present value

FV is the future value

r is the discount rate

n is the period

PV = 308.43

b. $400 to be received 6 years from now discounted back to the present at 6 percent

PV = 281.98

c. $1,000 to be received 8 years from now discounted back to the present at 5 percent

PV = 676.84

d. $900 to be received 9 years from now discounted back to the present at 20 percent

PV = 174.43

5-9B. (Compound interest with nonannual periods)

a. Calculate the future ...

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