Homework 1

READ BEFORE YOU START: Solve each of the following question using 3 methods: pricing formulas, a financial calculator, and Excel. When calculating using the pricing formula (e.g. Price of perpetuity P = C/r), please write the original formula and the steps where you plug in the number for each variable, and your final answers. When solving via a financial calculator, please indicate the inputs and output variable (e.g. PMT, N, PV, I/Y, and FV). When solving it using Excel, learn from the Excel functions file and print the results displayed in formula (Before printing, go to Formulas panel, click Show Formulas and then print the page). The results should have at least two columns: question number in column 1 and formula used in column 2 like below:

Question 1

=pmt(5%, 10, -100, 20, 0)

5. You are managing a small company and need to buy some equipment for your product line. Kangaroo Manufacturing is offering free credit on a $20,000 piece of equipment. You pay down $2,000 and then $600 a month for the next 30 months. Turtle Machines does not offer free credit but will give you a $2,000 off the list price. If the rate of interest is 10% (APR) a year, which company is offering a better deal?