12#1

Solve various time value of money scenarios.

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Scenario 1.

Frank

just hit the jackpot in Las Vegas and won

$55,000!

If he invests it now, at a

14%

interest rate, how much will it be worth in

20

years? (Round your answer to the nearest whole dollar.)

Future value

=

Scenario 2.

Hunt

would like to have

$2,000,000

saved by the time he retires in

30

years. How much does he need to invest now at a

10%

interest rate to fund his retirement goal? (Round your answer to the nearest whole dollar.)

Present value

=

Scenario 3. Assume that

Yvonne

accumulates savings of

$1.5

million by the time she retires. If she invests this savings at

10%,

how much money will she be able to withdraw at the end of each year for

15

years? (Round your answer to the nearest whole dollar and enter as a positive amount.)

Amount able to withdraw

=

Scenario 4.

Faith

plans to invest

$2,000

at the end of each year for the next

seven

years. Assuming a

10%

interest rate, what will her investment be worth

seven

years from now? (Round your answer to the nearest whole dollar.)

Future value

=

Scenario 5. Assuming a

12%

interest rate, how much would

Jennifer

have to invest now to be able to withdraw

$13,000

at the end of every year for the next

nine

years? (Round your answer to the nearest whole dollar.)

Present value

=

Scenario 6.

Darren

is considering a capital investment that costs

$495,000

and will provide

net cash inflows for three years.

Using a hurdle rate of

12%,

find the NPV of the investment. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negative NPV.)

Net Present Value (NPV)

=

Scenario 7. What is the IRR of the capital investment described in Question 6?

The IRR is the interest rate at which the investment

NPV = 0.

We tried

12%

in question 6, now we'll try

14%

and calculate the NPV. (Round your answer to the nearest whole dollar. Use parentheses or a minus sign to represent a negative NPV.)

Net Present Value (NPV)

=

The IRR for the project is

between 10% and 12%

between 12% and 14%

between 14% and 16%

between 16% and 18%

.

1.

Frank

just hit the jackpot in Las Vegas and won

$55,000!

If he invests it now, at a

14%

interest rate, how much will it be worth in

20

years?

2.

Hunt

would like to have

$2,000,000

saved by the time he retires in

30

years. How much does he need to invest now at a

10%

interest rate to fund his retirement goal?

3. Assume that

Yvonne

accumulates savings of

$1.5

million by the time she retires. If she invests this savings at

10%,

how much money will she be able to withdraw at the end of each year for

fifteen

years?

4.

Faith

plans to invest

$2,000

at the end of each year for the next

seven

years. Assuming a

10%

interest rate, what will her investment be worth

seven

years from now?

5. Assuming a

12%

interest rate, how much would

Jennifer

have to invest now to be able to withdraw

$13,000

at the end of every year for the next

nine

years?

6.

Darren

is considering a capital investment that costs

$495,000

and will provide the following net cash inflows:

Year	Net Cash Inflow
Year 1. . .	$298,000
Year 2. . .	$206,000
Year 3. . .	$98,000

Using a hurdle rate of

12%,

find the NPV of the investment.

7. What is the IRR of the capital investment described in Question 6?