Looking for help with the first few questions on this sheet to get a hang of the way these problems should be approached...

1ASSIGNMENT 1 Work out the following problems. Please turn them in to me by 4:45 p.m., Thursday, February 23, 2016. Use of Tables is NOT permitted. Only a financial calculator or a spreadsheet may be used. This is an individual assignment and perhaps one of the best chances for you to learn and apply time value of money concepts. You may consult other members of the class, but your submission should be made separately and should mention the name of person(s) you worked with. Hand written answers are acceptable. All answers have to be sequential and properly labeled. Answer the questions as if you are taking a test on which partial credit may be awarded for partially correct answers. That is, show all your work and/or inputs. See me if you need help. 1. Sam Trunk just turned 35. Till now he has no savings and wants to retire at age 65. Sam and his wife Julie want to draw $4,000 at the end of each month for the next 35 years upon retirement. How much should Sam and Julie save at the end of each month for the next thirty years to meet their retirement goal? Time value of money is 4.8% APR. Show all your work. 2. Amanda Weet who is six years old has been gifted $75,000 (after-tax) towards a college fund. Her parents do not have the ability to add any other amounts to the fund and a good four-year college education will cost about $50,000 per year in ten years from now. What rate of return should she earn to be able to withdraw $50,000 at the end of 10th, 11th , 12th and 13th year respectively. (Hint: IRR problem, draw a time line) 3. An auto dealer has designed a marketing gimmick. They are asking their customers to pay only $99 at the end of each month, for the first two years for a car priced at $10,000. The APR on the vehicle is 4.80% and the total term of the loan is 5 years. What is the monthly payment for the remaining three years? Interest is payable for the entire five year period. 4. The Booslers have twenty years remaining on a 5.4%APR thirty-year mortgage that had an initial balance of $500,000. The Bank of Greater Nowhere offers to refinance the loan at 3.24% APR for the next twenty years. What is the monthly saving for the Booslers. Show all your work. (Hint: Multi step problem. Figure out outstanding balance first) 5. Prepare an amortization schedule for the 121st, 122 nd and 123rd payments on a 30-year, 3.60% APR, $1 million mortgage loan. Payments are monthly. Show all your work. (Similar concept to problem 4). Month 121 122 123 Beginning Balance Monthly Payment Interest Principal Ending Balance 6. Now is perhaps the best time to refinance a home mortgage. Unfortunately, NY state has one of the highest refinancing cost in the nation. It costs an upfront $10,000 in fees and taxes to refinance a $100,000 balance in NY state. The Shaws have 15 years remaining on a 5.64%APR mortgage which now has an outstanding balance of $200,000. They can refinance at 3.60%APR for the remainder of the 15 years. What would be your advice to the Shaws? Should they refinance? Show all your work and calculations. 7. Gruber Landscape is planning to buy a new all purpose utility truck for $20,000. The truck has a useful life of 10 years at which time it can be sold for $3,000. Accountants at the firm have forecasted the following end-of-year net after-tax cash flows for the truck: Year 1 2 3 4 5 6 7 8 9 10 Cash Flow ($) 4,500 4,500 4,000 4,000 3,500 3,500 -2,000 3,500 3,500 3,500 The company requires a hurdle rate of 13.5% for all projects. Using NPV and IRR demonstrate if the truck should be purchased. Show all your work 8. A professional football team with the assistance of tax payers is planning to spend $ 1 billion on a new stadium. Their budget analyst has estimated that as a result of the box seats and all, the cash flows after tax will increase by $110 million each year (flat $110 m. each year, not $110, $220, $330 and so on)for the next 15 years. Assuming that the $1 billion is spent at time 0 and the after tax cash flows accrue at the end of each year, calculate the IRR of the project. Given a hurdle rate of 13 percent, should the project be accepted? Why? 9. Many individuals prefer to lease their vehicles rather than buy them. A new Audi Q7 can be leased for a down payment of $5,489 and 36 end-of-the -month payments of $499. Alternately, the car can be purchased for cash for $48,000 and a Q7 with about 40,000 miles is estimated to have resale value of $21,000 in three years time from now. Should one lease or buy if opportunity cost is 5.1%APR? Show all your work. 10. Michael Sparks is 45 years of age and quite a successful entrepreneur. He would like to retire at age 60 (15 years from now) and be able to withdraw $35,000 at the end of each month during retirement till he is 95 years of age (420 months) and he would like to bequeath $1 million to his alma mater Brockport when he turns 95. During his retirement years he can earn 4.2 percent APR. He is setting aside $750,000 to meet these goals. He will make no intermediate contributions to this account. What CAGR (compounded annual growth rate) will he need to meet his goals? Show all your work. (Hint: Draw a time line.). 11. To your age as a round number add four more years. At the end of the month following your birthday in that year you start adding $350 to a retirement plan that earns 6.0% APR. You will do so at the end of each month until you turn 65. a. How much will you have accumulated when you turn 65? b. If your life expectancy is 90 years, how much can you withdraw at the end of each month if you can earn 3.6% APR during retirement? c. By what amount does this monthly withdrawal amount exceed $350? Please show detailed explanations and calculations so that I can understand what you are doing. See me if there are any questions