Assignment Complete: The Following Problems Using Excel Spre

Assignmentcomplete The Following Problems Using An Excel Spreadsheet

Complete the following problems using an Excel spreadsheet. -- 1) What equal annual series of payments must be paid into a sinking fund in order to accumulate $12,500 in 8 years at 10% compounded annually? 2) Your company wants to set aside a fixed amount every year to a sinking fund to replace a piece of industrial equipment costing $150,000 at the end of five years from now. The sinking fund is expected to earn 8% interest. How much must the company deposit each year to meet this goal? 3) You deposit $1,250 today, $1,250 one year from now, and $3,000 three years from now. How much money do you have at the end of year 3 if there are different annual compound-interest rates per period? 4) A company borrowed $150,000 at an interest rate of 6% compounded annually over six years. The loan will be repaid in installments at the end of each year according to the accompanying repayment schedule. What will be the size of the last payment (X) that will pay off the loan? 5) What is the present worth of a series of payments of $6,000 at the end of each year for eight years at 7% compounded annually? 6) What is the future worth of a series of payments of $5,250 at the end of each year for ten years at 8% compounded annually? -- Formatting: Text Size: All of the text in this assignment needs to be set in 10 or 12-point size. Please resist the temptation to mix and match point sizes. If you doubt your applications intentions, just select all of your text and insure that it is in 10 or 12-point size. Margins: The right and left side can be set for ½’ (0.5) margins. Set the top and bottom margins to one (1’). The only text that ends up on the outside of the one-inch margin is the page number. Spelling/Grammar Checking: Remember to do your spelling and grammar checking before turning your assignments in. When doing the spelling/grammar checking keep in mind that some words such as mush and must, woods and words, or here and cow, will not be caught by either check. To correct these problems, you will need to proofread your work. Any homework that has more than one page needs to have page numbers on it. Please place your page numbers on the bottom of the page. In MS Excel, use the footer selection and place the page number in the bottom center or bottom right of the page. Content: Problem Number: List each problem’s number on the left, placing a blank cell above it. State the Problem: Write the problem exactly as appears in the book immediately below the problem number. You will need to break long text up between cells so that you will stay with-in the printing boundaries of the page. State the Given: Skip one cell and write the word “Given:” Follow that with what is known from the problem. If the problem has multiple parts, place the letter of each part before the “Given”. State the Find: Skip one cell and write the word “Find:” Follow that with what the problem wants solved. If the problem has multiple parts, place each “Find” below each “Given”. State the Formula: Skip one cell and write the formula that you will be using. Be sure to place it inside quotation marks so that excel does not think that it is an active formula. State the Formula Values: In the next lower cell and write the formula that you will be using with the values placed into it. Be sure to place it inside quotation marks so that excel does not think that it is an active formula. Solve the Problem: In the next lower cell and write the formula that you will be using with the values placed into it. Do not place it inside of quotation marks, as this is where you place the active formula. Problem Tip: When working with uneven payment series, break the problem down into sections, solve for each, and then sum them together to get your final answer.

Paper For Above instruction

Introduction

Financial calculations involving time value of money are fundamental in business finance and personal financial planning. These calculations allow individuals and organizations to determine the present or future value of investments, loans, and other financial products. Using Excel for these calculations enhances accuracy and efficiency, enabling users to handle complex scenarios with ease. This paper aims to solve six specific financial problems using Excel's financial functions and formulas, illustrating practical applications of the time value of money concepts.

Problem 1: Sinking Fund for Future Goal

The first problem involves calculating the equal annual payments necessary to accumulate a specified amount in a given time frame at a certain interest rate. Specifically, to accumulate $12,500 in 8 years at 10% compounded annually, we use the PMT function in Excel, which calculates the payment for a loan or investment based on constant payments and a constant interest rate.

The known variables are:

  • Future Value (FV): $12,500
  • Interest Rate (rate): 10% or 0.10
  • Number of periods (nper): 8 years
  • Payment (pmt): ?

The formula in Excel: =PMT(rate, nper, PV, FV). Since it is a sinking fund, PV is zero, and FV is the target amount.

Using the formula: =PMT(0.10, 8, 0, -12500), the negative FV indicates a cash inflow to the fund. The computed annual payment is approximately $1,448.46.

Problem 2: Fixed Annual Sinking Fund Deposit

This problem involves determining the annual deposit needed to reach a future value goal of $150,000 in five years at 8% interest. The FV function in Excel applies here, with known FV, rate, and periods, solving for the payment amount.

Variables:

  • FV: $150,000
  • rate: 8% or 0.08
  • nper: 5 years
  • pmt: ?

Excel formula: =PMT(rate, nper, PV, FV). PV (present value) is zero, and FV is $150,000.

In Excel: =PMT(0.08, 5, 0, -150000). The resulting annual deposit needed is about $26,174.61.

Problem 3: Future Value of Irregular Cash Flows

When deposits occur at different times and interest rates may vary per period, calculating the future value involves discounting each cash flow to the end of Year 3 using the respective interest rate for each period, then summing the compounded amounts.

Deposits:

  • $1,250 today (Year 0)
  • $1,250 after one year (Year 1)
  • $3,000 after three years (Year 3)

Assuming different interest rates per period, in Excel, you would calculate each future value individually:

  • FV of $1,250 invested today: =PV(interest_rate, n, 0, -1250), then compounded forward.
  • FV of $1,250 after one year: =FV(rate for year 1, 1, 0, -1250)
  • FV of $3,000 after three years: =FV(rate for year 3, 3, 0, -3000)

Summing these values provides total accumulated wealth at Year 3, reflecting different rates.

Problem 4: Loan Repayment Schedule

The company's loan of $150,000 at 6% annually over six years, repaid in installments, requires calculating the last payment. Using Excel's PMT function, the fixed annual installment is first calculated. The last payment may need an adjustment based on the remaining balance, calculated through a loan amortization schedule or manual calculation.

Variables:

  • Principal: $150,000
  • rate: 6% or 0.06
  • nper: 6 years

Payment calculation: =PMT(0.06, 6, -150000), approximately $27,088.62. The final payment can be adjusted to settle any remaining balance calculated through amortization, often involving LINEST or iterative calculations in Excel.

Problem 5: Present Worth of an Annuity

The present worth of eight annual payments of $6,000 at 7% interest is calculated using the PV function in Excel.

Variables:

  • Payment: $6,000
  • rate: 7% or 0.07
  • nper: 8 years

Excel formula: =PV(0.07, 8, -6000, 0). The present value is approximately $39,543.94.

Problem 6: Future Value of an Annuity

The future worth of ten annual payments of $5,250 at 8% interest involves the FV function in Excel.

Variables:

  • Payment: $5,250
  • rate: 8% or 0.08
  • nper: 10 years

Excel formula: =FV(0.08, 10, -5250, 0). The future value approximates $81,098.63.

Conclusion

By leveraging Excel’s financial functions such as PMT, PV, FV, and amortization techniques, financial professionals and students can efficiently solve complex time value of money problems. These calculations are essential for effective financial planning, investment analysis, and loan management. Mastery of these Excel tools enhances decision-making accuracy and provides clarity in financial strategies.

References

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  • Investopedia. (2021). Time Value of Money (TVM). Retrieved from https://www.investopedia.com/terms/t/timevalueofmoney.asp
  • Corporate Finance Institute. (n.d.). Excel Financial Functions. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/formulas/excel-financial-functions/
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