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Problem 3 (Calculate the FV of multiple uneven cash flows): Assume you have established a trust account for your child, which she will have access
Problem 3 (Calculate the FV of multiple uneven cash flows): Assume you have established a trust account for your child, which she will have access to once she reaches the age of 25 . This daughter just turned 24 today, so the first payment will occur at the end of this year, upon her 25th birthday. Under the terms of the trust agreement, she will receive $10,000 upon her 25th birthday, $20,000 upon her 26th birthday, $30,000 on her 27th birthday, and $50,000 on her 28th birthday. If she puts all of these payments into savings, and she can earn a rate of 5%, how much will she have in total on her 28th birthday? Calculate the FV of these cash flows at the end of year 4 (her 28th birthday). Problem 4 (Calculate the PV of multiple uneven cash flows): Your organization is considering investing $200,000 in a new piece of equipment that will allow for the production of a new product line. This product line is anticipated to result in the following cash flows for the next 8 years (the useful life of the equipment): Year 1: 18,000 Year 2: 5,000 Year 3: 34,000 Year 4: 47,000 Year 5: 62,000 Year 6: 84,000 Year 7: 110,000 Year 8: 81,000 If the organization requires an 8% rate of return, what is the PV of this potential investment? In other words, how much might the organization gain in today's dollars if they pursue production of this new product line? Problem 5 (Calculate the interest rate in a time value probem): If you currently have $150,000 in your retirement savings account, and you want to have $500,000 in the account by the time you retire in 30 years, what rate of return would you need to earn on an annual basis in order to get to the $500,000 balance if nothing else is added to this account in the next 30 years? Problem 3 (Calculate the FV of multiple uneven cash flows): Assume you have established a trust account for your child, which she will have access to once she reaches the age of 25 . This daughter just turned 24 today, so the first payment will occur at the end of this year, upon her 25th birthday. Under the terms of the trust agreement, she will receive $10,000 upon her 25th birthday, $20,000 upon her 26th birthday, $30,000 on her 27th birthday, and $50,000 on her 28th birthday. If she puts all of these payments into savings, and she can earn a rate of 5%, how much will she have in total on her 28th birthday? Calculate the FV of these cash flows at the end of year 4 (her 28th birthday). Problem 4 (Calculate the PV of multiple uneven cash flows): Your organization is considering investing $200,000 in a new piece of equipment that will allow for the production of a new product line. This product line is anticipated to result in the following cash flows for the next 8 years (the useful life of the equipment): Year 1: 18,000 Year 2: 5,000 Year 3: 34,000 Year 4: 47,000 Year 5: 62,000 Year 6: 84,000 Year 7: 110,000 Year 8: 81,000 If the organization requires an 8% rate of return, what is the PV of this potential investment? In other words, how much might the organization gain in today's dollars if they pursue production of this new product line? Problem 5 (Calculate the interest rate in a time value probem): If you currently have $150,000 in your retirement savings account, and you want to have $500,000 in the account by the time you retire in 30 years, what rate of return would you need to earn on an annual basis in order to get to the $500,000 balance if nothing else is added to this account in the next 30 years
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