Assignment
1. Amitron Inc. is considering an engineering project that requires an investment of $250.000 and is expected to generate the following stream of payments (income) in the future. Use the T1MEVAL program to determine if the project is a good idea in a present value sense. That is, does the present value of expected cash inflows exceed the value of the investment that has to be made today?
|
Year
|
Payment
|
|
1
|
563,000
|
|
2
|
69,500
|
|
3
|
32,700
|
|
4
|
79,750
|
|
5
|
62,400
|
|
6
|
38,250
|
a. Answer the question if the relevant interest rate for taking present values is 9%, 10%, 11%. and 12%. In the program. notice that period zero represents a cash flow made at the present time, which isn't discounted. The program will do the entire calculation for you if you input the initial investment as a negative number in this cell.
b. Use trial and error in the program to find the interest rate (to the nearest hundredth of a percent) at which Amitron would be just indifferent to the project.
2. The Centurion Corp. is putting together a financial plan for the company covering the next three years, and it needs to forecast its interest expense and the related tax savings. The firm's most significant liability is a fully amortized mortgage loan on its real estate. The loan was made exactly ten and one-half years ago for 53.2M at 11% compounded monthly for a term of 30 years. Use the AMORTIZ program to predict the interest expense associated with the real estate mortgage over the next three years. (Hint Run AMORTIZ from the loan's beginning and add up the months in each of the next three years.)