Essay: Calculating Year Savings

Sample Essay

1 $35,000

2 50,000

3 45,000

4 25,000

5 15,000

Should the firm make this investment if it requires a minimum annual return of 9% on all investments?

We will use Net Present Value computation in this assignment

NPV Schedule
Years Undiscounted Discounted @ 9%
Cash Flow Cash Flow
1 35000 32110.09
2 50000 42084.00
3 45000 34748.26
4 25000 17710.63
5 15000 9748.97
Total 136,402
Less Initial Outlay 130,000
NPV 6,402

Hence the NPV is in Positive than the company should invest in it.

 

E5–5 Joseph is a friend of yours. He has plenty of money but little financial sense. He received a gift of $12,000 for his recent graduation and is looking for a bank in which to deposit the funds. Partners’ Savings Bank offers an account with an annual interest rate of 3% compounded semiannually, while Selwyn’s offers an account with a 2.75% annual interest rate compounded continuously. Calculate the value of the two accounts at the end of one year, and recommend to Joseph which accounts he should choose.

Actual Yield Compounded Semiannually is = 3.022%

Actual Yield Compounded Continuously is = 2.788%

Semi-Annually Investment @ 3.022% = 12,362.7 $

Continuous Investment @ 2.788% = 12,334 $

Should go for the bank pays Semi Annually.

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