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## Present Value and Future Value Formulas in Excel

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InstructionsPresent Value and Future Value Formulas in Excel

Index

Workbook Index Wk 3 – Set 1, Part 1 Wk 3 – Set 1, Part 2 Wk 3 – Set 2, Part 1 Wk 3 – Set 2, Part 2 Wk 3 – Set 2, Part 3 Wk 3 – Set 1, Part 1

Complete the following 7 Wk 3 Financial Exercises: Problem Set 1, Part 1 questions using either the financial functions in Excel® or the Present Value and Future Value formulas shown: Present value formula: PV = FV * 1 / (1+i)^n Future value formula: FV = PV * (1+i)^n Question Answer 1. If you want to have $60,000 in 8 years, how much do you need to deposit in the bank today if the account pays an interest rate of 9%? Insert your answer. 2. What will $110,000 grow to be in 9 years if it is invested today at 11%? Insert your answer. 3. You would like to have $200,000 in a college fund in 15 years. How much do you need today if you expect to earn 12% while you are investing to pay for your child’s college? Insert your answer. 4. You have been offered $3,000 in 4 years for providing $2,000 today into a business venture with a friend. If interest rates are 10%, is this a good investment for you? Insert your answer. 5. What will $82,000 grow to be in 11 years if it is invested today at 8% and the interest rate is compounded monthly? Insert your answer. 6. How many years will it take for $136,000 to grow to $468,000 if it is invested in an account with an annual interest rate of 8%? Insert your answer. 7. At what interest rate must $112,000 be invested so that it will be worth $392,000 in 14 years? Insert your answer.

Wk 3 – Set 1, Part 2

Complete the following 6 Wk 3 Financial Exercises: Problem Set 1, Part 2 problems: 1. Calculate the net present value (NPV) of the following cash flow stream if the required rate is 12%: Insert your NPV calculation. Year 0 1 2 3 4 5 Cash Flow (230,000) 60,000 60,000 60,000 60,000 60,000 Is this a good project for the business to accept? Explain why or why not. Insert your answer. 2. Calculate the NPV of the following cash flow projections based on a required rate of 10.5%: Insert your NPV calculation. Year 0 1 2 3 4 Cash Flow (120,000) 35,000 47,500 55,000 62,000 Is this a good project for the business to accept? Explain why or why not. Insert your answer. 3. A company needs to decide if it will move forward with 2 new products that it is evaluating. The 2 initiatives have the following cash flow projections: Project A Year 0 1 2 3 4 Cash Flow -800,000 220,000 265,000 292,000 317,000 Project B Year 0 1 2 3 4 5 Cash Flow -650,000 175,000 175,000 175,000 175,000 175,000 Based on the risk of each project, the company has a required rate of return of 11% for Project A and 11.5% for Project B. The company has a $1.5 million budget to spend on new projects for the year. Should the company move forward with one, both, or neither of the two new products? Show your work to support your answer. Insert your answer. 4. Calculate the internal rate of return (IRR) of the following cash flows: Year 0 1 2 3 4 5 6 7 Cash Flow (1,650,000) 330,000 365,000 380,000 415,000 405,000 370000 294,000 Insert your answer. 5. If a company has a required rate of return of 15%, should the following project be accepted based on these expected cash flows below? Year 0 1 2 3 4 5 6 Cash Flow (274,000) 68,000 73,000 76,500 78,000 82,500 77,000 Explain why or why not the company should move forward with this endeavor. Insert your answer. 6. Based on the investor expectations of earning at least 12%, should this projected below be completed? Year 0 1 2 3 4 5 6 Cash Flow (133,000) 37,000 42,750 44,000 46,500 82,500 77,000 Explain why or why not the company should move forward with this endeavor. Insert your answer. Describe the 5 types of budgets listed for these Wk 3 Financial Exercises: Problem Set 2, Part 1. In your descriptions, include the budget’s objective, how the budget assists an organization in managing its financial activities, and what types of data need to be included in that specific budget. Type of Budget Description Cash Flow Insert cash flow description. Operating Insert operating description. Sales Insert sales description. Static Insert static description. Financial Insert financial description. Wk 3 – Set 2, Part 2

Complete the following 3 Wk 3 Financial Exercises: Problem Set 2, Part 2 problems using the following ratios: Sales level at which operating income is zero o If sales above breakeven, then profit o If sales below breakeven, then loss o Fixed expenses = total contribution margin Total sales = total expenses Break Even Point: Unit Sold = Fixed expenses + Operating Income / Contribution Margin per unit Break Even Point: Sales $ = Fixed expenses + Operating Income / Contribution Margin Ratio Problem Answer 1. Calculate the break even number of units if the fixed expenses are $7,000 and the contribution margin is $14 per unit. Insert your answer. 2. Calculate the break even sales dollars if the fixed expenses are $7,000 and the contribution ratio is 40%. Insert your answer. 3. Calculate the break even number of units with a target profit of $120,000 if the fixed expenses are $15,000 and the contribution margin is $60 per unit. Insert your answer. Wk 3 – Set 2, Part 3

Complete the following 5 Wk 3 Financial Exercises: Problem Set 2, Part 3 problems: Problem Answer 1. How much will you have saved after 6 years by contributing $1,200 at the end of each year if you expect to earn 11% on the investment? Insert your answer. 2. A business owner plans to deposit their annual profits in an investment account earning a 9% annual return. If the owner starts with their first deposit today for $22,000 and expects to make the same profit for the next 7 years, how much will be saved for retirement at that point? Insert your answer. 3. An investor plans to invest $500 a year and expects to get a 10.5% return. If the investor makes these contributions at the end of the next 20 years, what is the present value of this investment today? Insert your answer. 4. What is the present value (PV) of a 12-year lease arrangement with an interest rate of 7.5% that requires annual payments of $4,250 per year with the first payment being due now? Insert your answer. 5. A recent college graduate hopes to have $200,000 saved in their retirement account 25 years from now by contributing $150 per month in a 401(k) plan. The goal is to earn 10% annually on the monthly contribution. Will they have the $200,000 at the end of the 25 years? Insert your answer.

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