TIME VALUE OF MONEY (Future Value) Exercise 1: You want to invest to a house and started to have savings today at $1,000

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TIME VALUE OF MONEY (Future Value)
Exercise 1:
You want to invest to a house and started to have savings today
at
$1,000 for 10 years . What will be the future value of money
you
will received in 10 years with the annual compound interest of
5%.
Exercise 2:
Muthu planned to pay a house deposit in one year
from now. The amount of deposit needed is
RM10,000. The interest given by the bank is 10% per
year. How much does Muthu need to save today?
Exercise 3:
• The Xavier Motor Company makes outdoor would like to consider
tractor and snowblower as a demand
for more powerful equipment in the company and due to some
competitors are already moving in that
direction.
• Management wants to make a decision based on only five years of
projected cash flow because it feels
the future beyond that is too vague to form a basis for current
decisions.
• A financial analysis has put together a set of projected
incremental cash flows for each project with a
cost of capital 9%

Net Present
Value
Year Tractor (cash flow)
Snowblower (cash flow)
Co (3000)


(3,500)
C1 (250)


(700)
C2 500


800
C3 1,000


1,200
C4 1,500


2,000
C5 1,500


2,000
Exercise 4:
AG company would like to spend RM 700,000 on buying
equipment.
The cash inflows as in the Table. Calculate the payback
period.

Payback Period
Year
Cash Flow
1
150,000
2
150,000
3
200,000
4
600,000
5
900,000
Exercise 5:
• AJK company is considering two independent projects, L and
M.
Both projects require RM180,000 of initial outlay. The
projected
net cash flow for both projects as follows:
Year Project M
Project L
1 80,000
40,000
2 70,000
50,000
3 60,000
60,000
4 50,000
70,000
5 40,000
80,000
• Calculate the Payback period
• Which project promising a good payback period?
Exercise 6:
Compute the Profitability Index (PI) for a project with the
following cash flows if the cost of
capital is 13%. Is the project acceptable on a stand alone
basis?
Period Cash Flow
0
(3,000,000)
1
100,000
2
500,000
3
1,000,000
4
1,500,000
5
200,000
6
500,000
7
1,000,000