Tarik Begi

Developing Financial Insights Using a Future Value (FV) and a Present Value (PV) Approach

The case deals with the calculation of the future value and present value and its use in making financial decision. It starts with basic formulas for calculating the present and future values of a single payment. It also explains the way to calculate the present and future values of a stream of cash flows. But the thing I learned from case is the way to simplify those calculations by using premade tables, which provide combinations of the duration and interest rates on the cash flow and give numbers which simplify the NPV formula immensely. The problems were not really hard, except the fourth and fifth. I was not sure how to implement the tax deductibles in the calculation, so I assumed that the tax income is cancelled by the tax deductible from depreciation. Here are the solutions to the problems. 1) a) -25000 + 15000*(1.08)5=-25000 + 15000*1.46933=-25000 + 22039.92=2960.0789 b) -25000+(500*6,336)+(15000*1.085)=-25000+3168+22039.92=207.92 2) a) 50000000/1.184=25789413.961 b) x*2,690=25789413.961 x=9587142.736 3) 40000*8.384=335360 a) 48000*7.360=353280 b) 50000*4.917+30000*(8.384-4.917) = 245850+104010= 349860 4)

a) -45000+(8000*5.747)=976 b) -45000+8000*3.993+4800*(5.747-3.993)=-45000+31944+8419.2= -4636.8 5) -6000000+220000*6.710-100000*6.710=-6000000+805200= -5194800 NO INFORMATION ABOUT INCOME FROM THE INVESTMENT WAS PROVIDED, SO THE INCOME NEEDED TO REACH AN NPV OF ZERO IS 5194800. 6) -520000+100000*X=0 X=5.2 (X is the parameter in the table which combines a certain duration and interest) 6 years - 4% (BASED ON EXHIBIT 4) 10 years - 14% (BASED ON EXHIBIT 4)