Time value of money Present Value 1) A bank promises to give you Rs.

10,000 after 3 years at the rate of 10% p.a interest. How much should you deposit today? 2) Calculate the present value of annuity of Rs. 5,000 received annually for four years, when discounting factor is 10% 3)Mr. Parekh has invested Rs. 50,000 on Xerox Machine on 1 st Jan 2002. he estimates net cash income from Xerox Machine in next 5 years as under. Year Estimated Inflows 200 12,000 2 15,000 200 18,000 3 25,000 200 30,000 4 200 5 200 6 At the end of 5th year machine will be sold at scrap value of Rs. 5,000. In addition to investment working capital Rs 10,000. Advice him whether his project is viable, considering interest rate of 10%p.a. 4) The share of Ridhi Ltd. (Rs. 10) was quoting at Rs. 102 on 01.04.2002 and the price rose to Rs. 132 on 31/03/2005 on which date investment is sold. Dividends were received at 10% Cost of funds was 10%. Is it a worth while investment considering the time value of money? (present value factor at 10% were 0.909, 0.826 and 0.751) 5) XYZ & Co. is considering investing in a project requiring a capital outlay of Rs. 2,00,000. Forecast for annual income after tax is as follows : Year 1 2 3 4 5 Profit after Tax (Rs.) 1,00,000 1,00,000 80,000 80,000 40,000 Depreciation is 20% on straight line basis valuate the project on the basis of Net present value taking 14% discounting factor and advise whether XYZ & Co. should invest in the project or not? The present value of Re. 1 at 14% discounting rate are 0,8772, 0.7695, 0.6750, 0.5921 and 0.5194. 6) Mukesh has invested Rs 10,000 in bank certificate of deposit for 2 years at 8%. How much will he receive at maturity. 7) Assume that you have given a choice between incurring an immediate outlay of Rs 10,000 and having to Rs 2,310 a year for 5 years the discount rate 11%. What would be your choice? 1. Nothing is really over , untili the moment you stop trying

8) Mr Mahesh is planning to retire this year. His company can pay him a lump sum retirement payment of Rs 2,00,000 or Rs 25,000 life time annuity whichever he chooses. Mr Mahesh is in good health and estimates to live for at least 20 years. If the interest rate is 12% , which alternative should be choose. 9) Mittal enterprises purchases a machinery for Rs 1, 00,000 on 1 st January 1999. The net profit after tax expected from the machinery are as follows : 2000- Rs 7000 2001-Rs 9000 2002-Rs 19000 2003-Rs 23,000 2004-Rs 35,000 The depreciation on machinery is to be provided @10% p.a. wdv. At end of 2004 the machinery is sold at loss of Rs 7,500. The rate of interest being 9% comment on your decision. 10) A bank advertises that it will pay a lump sum of Rs 45,750 at end of 8 years to the investor who is depositing annually Rs 4,000 for 8 years. What is the interest rate bank is paying. 11) A bank offered to lend you Rs 1,00,000 if you sign a note to repay Rs 1,61,050 at end of 5 years. What would be rate of interest 12)A is due to receive Rs 10,000 at end of 5 years. Since A is need of money immediately, he wants to sell his interest to B. B wants return of 10% p.a. on his investment. How much he should pay to A. 13)Krishnamurthy has inherited Rs 1,000 a year for next 20 years. First payment being made in one years time. However he is need of money immediately and would like to sell his income to any buyer who would pay him the right price. Assume that the current market rate of interest is 9%. (a) What should be the right price he should accept ? (b) How much of his income should he sell if he wants only 2,500 at present (c) If you have invested in buying the income but if you had only Rs 5,000 to invest what would be your proposal

2. Nothing is really over , untili the moment you stop trying