Complete tabs 6.1, 6.4, 6.7, 6.9, 6.12, 6.16, 6.23, and 6.33 in the attached Chapter 6 Excel spreadsheet. An EXAMPLE tab is provided in the spreadsheet for your guidance. You must use formulas in the spreadsheet to show your work.

6.6 Present value with multiple cash flows: Biogenesis Inc. management expects the following cash flow stream over the next five years. They discount all cash flows at a 23 percent discount rate. What is the present value of this cash flow stream? Year Cash flow Discount rate= 1 2 $ (1,133,676) $ (978,452) $ 23% Present value 3 275,455 $384,711.72 Tabular Solution: 23.00% Year CFs PVIF 0 1 (1,133,676) 0.81300813 2 (978,452) 0.66098222 3 275,455 0.53738392 4 878,326 0.43689749 5 1,835,444 0.35520122 NPV (921,688) (646,739) 148,025 383,738 651,952 ($384,711.72) $ 4 878,326 $ 5 1,835,444 6.1. Future value with multiple cash flows: Konerko, Inc., expects to earn cash flows of $13,227, $15,611, $18,970, and $19,114 over the next four years. If the company uses an 8 percent discount rate, what is the future value of these cash flows at the end of year 4? 6.3. Future value with multiple cash flows: You are a freshman in college and are planning a trip to Europe when you graduate from college at the end of four years. You plan to save the following amounts annually, starting today: $625, $700, $700, and $750. If the account pays 5.75 percent annually, how much will you have at the end of four years? 6.4. Present value with multiple cash flows: Saul Cervantes has just purchased some equipment for his landscaping business. For this equipment he must pay the following amounts at the end of each of the next five years: $10,450, $8,500, $9,675, $12,500, and $11,635. If the approriate discount rate is 10.875 percent, what is the cost in today's dollars of the equipment Saul purchased today? 6.5. Present value with multiple cash flows: Jeremy Fenloch borrowed some money from his friend and promised to repay him the amounts of $1,225, $1,350, $1,500, $1,600, and $1,600 over the next five years. If the friend normally discounts investment cash flows at 8 percent annually, how much did Jeremy borrow? 6.7. Present value of an ordinary annuity: An investment opportunity requires a payment of $750 for 12 years, starting a year from today. If your required rate of return is 8 percent, what is the value of the investment to you today? 6.8. Present value of an ordinary annuity: Dynamics Telecommunications Corp. has made an investment in another company that will guarantee it a cash flow of $22,500 each year for the next five years. If the company uses a discount rate of 15 percent on its investments, what is the present value of this investment? 6.9. Future value of an ordinary annuity: Robert Hobbes plans to invest $25,000 a year at the end of each year for the next seven years in an investment that will pay him a rate of return of 11.4 percent. How much money will Robert have at the end of seven years? 6.10. Future value of an ordinary annuity: Cecelia Thomas is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $3,000 every year in an IRA account, beginning at the end of this year until she turns 65 years old. If the IRA investment will earn 9.75 percent annually, how much will she have in 40 years, when she turns 65? 6.11 Future value of an annuity due: Refer to Problem 6.10. if Cecelia invests at the beginning of each year, how much will she have at age 65? 6.12 Computing annuity payment: Kevin Winthrop is saving for an Australian vacation in three years. He estimates that he will need $5,000 to cover his airfare and all other expenses for a week-long holiday in Australia. If he can invest his money in an S&P 500 equity index fund that is expected to earn an average return of 10.3 percent over the next three years, how much will he have to save every year if he starts saving the end of this year? 6.13 Computing annuity payment: The Elkridge Bar & Grill has a seven-year loan of $23,500 with Bank of America. It plans to repay the loan in seven equal installments starting today. If the rate of interest is 8.4 percent, how much will each payment be? 6.14 Perpetuity: Your grandfather is retiring at the end of next year. He would like to ensure that his heirs receive payments of $10,000 a year forever, starting when he retires. If he can earn 6.5 percent, how much does your grandfather need to invest to produce the desired cash flow? 6.15 Perpetuity: Calculate the annual cash flows for each of the following investments: a. $250,000 invested at 6 percent. b. $50,000 invested at 12 percent. c. $100,000 invested at 10 percent. 6.16. Effective annual rate: Raj Krishnan bought a Honda Civic for $17,345. He put down $6,000 and financed the rest through the dealer at an APR of 4.9 percent for four years. What is the effective annual rate (EAR) if the loan payments are made monthly? 6.17. Effective annual rate: Cyclone Rentals borrowed $15,550 from a bank for three years. If the quoted rate (APR) is 6.75 percent, and the compounding is daily, what is the effective annual interest rate (EAR)? 6.18. Growing perpetuity: You are evaluating a growing perpetuity investment from a large financial services firm. The investment promises an initial payment of $20,000 at the end of this year and subsequent payments that will grow at a rate of 3.4 percent annually. If you use a 9 percent discount rate for investments like this, what is the present value of this growing perpetuity? 6.19. Future value with multiple cash flows: Trigen Corp. management will invest cash flows of $331,000, $616,450, $212,775, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 6.75 percent, what is the future value of these investment cash flows six years from today? 6.20. Future value with multiple cash flows: Stephanie Watson plans to make the following investments beginning next year. She will invest $3,125 in each of the next three years and will then make investments of $3,650, $3,725, $3,875, and $4,000 over the following four years. If the investments are expected to earn 11.5 percent annually, how much will Stephanie have at the end of the seven years? 6.21. Present value with multiple cash flows: Carol Jenkins, a lottery winner, will receive the following payments over the next seven years. If she can invest her cash flows in a fund that will earn 10.5 percent annually, what is the present value of her winnings? 6.22. Computing annuity payment: Gary Whitmore is a high school sophomore. He currently has $7,500 in a savings account that pays 5.65 percent annually. Gary plans to use his current savings plus what he can save over the next four years to buy a car. He estimates that the car will cost $12,000 in four years. How much money should Gary save each year if he wants to buy the car? 6.23. Growing annuity: Modern Energy Company owns several gas stations. Management is looking to open a new station in the western suburbs of Baltimore. One possibility that managers at the company are evaluating is to take over a station located at a site that has been leased from the county. The lease, originally for 99 years, currently has 73 years before expiration. The gas station generated a net cash flow of $92,500 last year, and the current owners expect an annual growth rate of 6.3 percent. If Modern Energy uses a discount rate of 14.5 percent to evaluate such businesses, what is the present value of this growing annuity? 6.24. Future value of an annuity due: Jeremy Denham plans to save $5,000 every year for the next eight years, starting today. At the end of eight years, Jeremy will turn 30 years old and plans to use his savings toward the down payment on a house. If his investment in a mutual fund will earn him 10.3 percent annually, how much will he have saved in eight years when he buys his house? 6.25. Present value of an annuity due: Grant Productions has borrowed a huge sum from the California Finance Company at a rate of 17.5 percent for a seven-year period. The loan calls for a payment of $1,540,862.19 each year beginning today. How much did Grant borrow? 6.26. Present value of an annuity due: Sharon Kabana has won a state lottery and will receive a payment of $89,729.45 every year, starting today, for the next 20 years. If she normally invests at a rate of 7.25 percent, what is the present value of the cash flows that she will receive? Round to the nearest dollar. 6.27 Present value of an annuity due: You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into its systems and is offering to pay you $500,000 today, plus $500,000 at the end of each of the following six years, for permission to do this. If the appropriate interest rate is 6 percent, what is the present value of the cash flow stream that the company is offering you? 6.28 Present Vlaue of an annuity: Suppose that the networking company in Problem 6.27 will not start paying you until the first of the new systems that use your software are sold in two years. What is the present value of that annuity? Assume the appropriate interest rate is still 6 percent. 6.29 Perpetuity: Calculate the present value of the following perpetuities: a. $1,250 discounted back to the present at 7 percent. b. $7,250 discounted back to the present at 6.33 percent. c. $850 discounted back to the present at 20 percent. 6.30. Effective annual interest rate: Find the effective annual interest rate (EAR) for each of the following: a. b. c. d. 6 percent compounded quarterly. 4.99 percent compounded monthly. 7.25 percent compounded semiannually. 5.6 percent compounded daily. 6.31. a. b. c. d. e. Effective annual interest rate: Which of the following investments has the highest effective annual interest rate (EAR)? A bank CD that pays 8.25 percent interest quarterly. A bank CD that pays 8.25 percent monthly. A bank CD that pays 8.45 percent annually. A bank CD that pays 8.25 percent semiannually. A bank CD that pays 8 percent daily (on a 365-day basis). 6.32. Effective annual interest rate: You are considering three alternative investments: (1) a three-year bank CD paying 7.5 percent compounded quarterly; (2) a three-year bank CD paying 7.3 percent compounded monthly; and (3) a three-year bank CD paying 7.75 percent compounded annually. Which investment has the highest effective annual interest rate (EAR)? 6.33 You have been offered the opportunity to invest in a project which is exected to provide you with the following cash flows: $4,000 in 1 year, $12,000 in 2 years, and $8,000 in 3 years. If the appropriate interest rates are 6 percent for the first year, 8 percent for the second year, and 12 percent for the third year, what is the present value of these cash flows? 6.34. Tirade Owens, a professional athlete, currently has a contract that will pay him a large amount in the first year of his contract and smaller amounts thereafter. He and his agent have asked the team to restructure the contract. The team, though reluctant, obliged. Tirade and his agent came up with a counteroffer. What are the present values of each of the contracts using a 14 percent discount rate? Which of the three contacts has the highest present value? 6.35. Gary Kornig will be 30 years old next year and wants to retire when he is 65. So far he has saved (1) $6,950 in an IRA account in which his money is earning 8.3 percent annually and (2) $5,000 in a money market account in which he is earning 5.25 percent annually.. Gary wants to have $1 million when he retires. Starting next year, he plans to invest the same amount of money, every year until he reitres, in a mutual fund in which he expects to earn 9 percent annually. How much will Gary have to invest every year to achieve his savings goal? 6.36 The top prize for the state lottery is $100,000,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $100,000,000 in 25 equal payments of $4,000,000 - one payment today and one payment at the end of each of the next 24 years. If you choose the cash payment, you will receive a one-time lump sum payment of $59,194,567.18. If you can invest the proceeds and earn 6 percent, which option should you choose? 6.37 At what interest rate would you be indifferent between the cash and annual payment options in Problem 6.36? 6.36 The top prize for the state lottery is $100,000,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $100,000,000 in 25 equal payments of $4,000,000 - one payment today and one payment at the end of each of the next 24 years. If you choose the cash payment, you will receive a one-time lump sum payment of $59,194,567.18. If you can invest the proceeds and earn 6 percent, which option should you choose? 6.38. Babu Baradwaj is saving for his son's college tuition. His son is currently 11 years old and will begin college in seven years. Babu has an index fund investment of $7,500 that is earning 9.5 percent annually. Total expenses at the University in Maryland, where his son says he plans to go, currently total $15,000 per year, but are expected to grow at roughly 6 percent each year. Babu plans to invest in a mutual fund that will earn 11 percent annually to make up the difference between the college expenses and his current savings. In total, Babu will make seven equal investments with the first starting today and with the last being made a year before his son begins college. a. What will be the present value of the four years of college expenses just when the son starts college? Assume a discount rate of 5.5 percent. b. What will be the value of the index mutual fund when the son just starts college? c. What is the amount that the father has to have saved when his son turns 18? d. How much will the father have to invest every year in order for him to have enough funds to cover all tuition expenses? 6.39. You are now 50 years old and plan to retire at age 65. You currently have a stock portfolio worth $150,000, a 401(k) retirement plan worth $250,000, and a money market account worth $50,000. Your stock portfolio is expected to provide you annual returns of 12 percent, your 401(k) investment will earn you 9.5 percent annually, and the money market account earns 5.25 percent, compounded monthly. 6.40. Trevor Diaz is looking to purchase a Mercedes Benz SL600 Roadster, which has an invoice price of $121,737 and a total cost of $129,482. Trevor plans to put down $20,000 and will pay the rest by taking on a 5.75 percent fiveyear loan. What is the monthly payment on this auto loan? Prepare an amortization table using Excel. 6.41. The Sundarams are buying a new 3,500-square-foot house in Muncie, Indiana, and will borrow $237,000 from Bank One at a rate of 6.375 percent for 15 years. What is their monthly loan payment? Prepare an amortization schedule using Excel. 6.42. Assume you will start working as soon as you graduate from college. You plan to start saving for your retirement. on your 25th birthday and retire on your 65th birthday. After retirement, you expect to live at least until you are 85. You wish to be able to withdraw $40,000 (in today's dollars) every year from the time of your retirement until you are 85 years old (i.e., for 20 years). You can invest, starting when you turn 25 years old, in a portfolio fund. The average inflation rate is likely to be 5 percent. STP #6.1. Freisinger, Inc., is expecting a new project to start paying off, beginning at the end of next year. It expects cash flows to be as follows: STP#6.2 Compare an annuity due with an ordinary annuity. The payments for both are made annually and are of the same dollar amounts. The two annuities also have the same duration in years and the same discount rate. Which of the following statements is/are correct? a. The present value of the ordinary annuity is greater. b. The present value of the annuity due is greater. c. The future value of the ordinary annuity is greater. d. The future value of the annuity due is greater. STP#6.3 You plan to set up an endowment at your Alma Mater which will fund $200,000 of scholarships each year indefinitely. If the principal (the amount you donate) can be invested at 5.5 percent, compounded annually, how much do you need to donate to the university today, so that the first scholarships can be awarded one year from now? STP#6.4 Annalise Genric wants to open a restaurant in a historic building. The property can be leased for 20 years, but not purchased. She believes her restaurant can generate a net cash flow of $76,000 the first year and expects an annual growth rate of 4 percent thereafter. If a discount rate of 15 percent is used to evaluate this business, what is the present value of the cash flows that it will generate? STP#6.5 A credit card offers financing at an APR of 18 percent, with monthly compounding on outstanding charges. What is the effective annual rate (EAR)