In a book named "Cases in Financial Management," Case 1 - Davis, Micheal, and Company

Topic - Discounted Cash Flow Analysis

14th edition - textbook

Instructions: Omit 1 cde, 2 cd, 3 c, 4 acef, 5, 6, 7, 8, 9, 10.

1.a. On the Texas Instruments BA II Plus Financial Calculator, press: 1 N 10 I/Y 10000 +1- (1 key to make it a negative number - calculator assumes a cash outflow) PV 0PMT CPT FV (answer = $11,000)

1. Consider a 1-year, $10,000 CD

1.a. What is its value at maturity (future value) if it pays 10 percent (annual) interest?

1.b. What would b the future value if the CD pays 5 percent? If it pays 15 Percent?

1.b. Change 5 to 1 ad 15 to 20.

2. a. On the Texas Instrument BA II Plus Financial Calculator, press: 5 N 10 I/Y (all other numbers are same as 1.a.) CPT FV (answer = $16,105)

2. Now consider a 5-year CD. Rework Parts a through b of Question 1 using a 5-year ending date.

2.b. Change 5 to 1 and 15 to 20.

3. It is estimated that in five years the total cost for one year of college will be $20,000 after five years.

3.a. How much must be invested today in a CD paying 10 percent annual interest in order to accumulate the needed $20,000

3.b. If only $10,000 is invested, what annual interest rate is needed to produce $20,000 after five years?

3. Change 20,000 to 10,000.

4. Now consider the second alternative-five annual payments are invested in an account paying 10 percent interest annually?

4.b. What is the future value of this annuity if the payments are invested in an account paying 10 percent interest annually?

4. Change 20,000 to 10,000. See page 148-9.

4.b. Change 10,000 to 1,000. see page 151.

4.b. Change 10 to 5. see pages 153-5

4.d. What size payment would be needed to accumulate $20,000 under annual compounding at a 10 percent interest rate?

4.d. Change 20,000 to 10,000and 10 to 5 see pages 159.