Homework 2 Help Sheet - 35 Points Assignment Complete

Homework 2 Help Sheet 35 Pointsassignmentcomplete The Following

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?

Paper For Above instruction

Financial mathematics plays a crucial role in engineering economics, providing tools for making informed financial decisions involving investments, loans, and savings over time. This paper discusses six key problems illustrating the application of Excel for solving financial calculations, including sinking funds, loan amortizations, and time value of money computations, emphasizing the importance of precise analysis for optimal economic outcomes.

The first problem involves determining the equal annual payments required in a sinking fund to accumulate a specified amount, illustrating the use of the future value of an ordinary annuity. Specifically, to accumulate $12,500 in 8 years at an interest rate of 10%, the calculation requires the present value of a series of payments, which can be derived using the PMT function in Excel. The formula involves the future value, the interest rate, and the period count, allowing corporate finance managers to plan consistent contributions for future liabilities efficiently.

The second problem focuses on planning annual deposits into a sinking fund to replace industrial equipment. Given a future cost of $150,000 in five years and an annual interest rate of 8%, the necessary annual payment is found using the PMT function, which calculates the fixed payment necessary to reach a future value considering compound interest. This application demonstrates the importance of time value of money concepts in capital budgeting and asset management.

In the third problem, the accumulation of funds with varying interest rates over different periods is explored. Here, deposits made at different times and with different interest rates require a stepwise approach, calculating the amount of each deposit at the end of year 3 using compound interest formulas. Excel's FV function can be tailored to handle different interest rates per period, making it a valuable tool for modeling such complex cash flows.

The fourth problem involves amortizing a loan of $150,000 over six years at 6% interest compounded annually. The repayment schedule follows a fixed installment plan except for the last payment. The challenge lies in calculating the last payment, which entails solving for the remaining balance after five payments, often handled via the PV and FV formulas in Excel. This capability is essential for financial managers to predict liabilities and plan repayments accurately.

The fifth problem concerns determining the present worth of a series of future payments, which is fundamental in investment appraisal. Using the PV function in Excel, the present value of an annuity of $6,000 annually for eight years at 7% interest can be calculated. This analysis aids investors and managers in assessing the current value of future cash flows, providing a basis for investment decisions.

Conversely, the sixth problem calculates the future worth of regular payments of $5,250 over ten years at 8%, highlighting the power of compound interest in growing investments. Utilizing the FV function in Excel, such calculations enable individuals and corporations to plan for long-term savings and growth strategies effectively.

Overall, these problems demonstrate the versatility of Excel as a financial tool in engineering economics, illustrating key concepts such as present and future values, annuities, sinking funds, and loan amortization. Precise application of these functions ensures sound financial planning, risk management, and decision-making in engineering projects and corporate finance.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
  • Ross, S. A., Westerfield, R. W., Jaffe, J., & Jordan, B. (2018). Corporate Finance (12th ed.). McGraw-Hill Education.
  • Damodaran, A. (2015). Applied Corporate Finance (4th ed.). Wiley.
  • Colander, D. C., & Klammer, T. P. (2018). Economics (10th ed.). McGraw-Hill Education.
  • Higgins, R. C. (2018). Analysis for Financial Management (11th ed.). McGraw-Hill Education.
  • Excel Help and Support: Financial Functions. Microsoft Support. Retrieved from https://support.microsoft.com
  • Time Value of Money Calculations in Excel. Investopedia. Retrieved from https://www.investopedia.com
  • Excel for Financial Calculations. Corporate Finance Institute. Retrieved from https://corporatefinanceinstitute.com
  • Investing and Finance. Khan Academy. Retrieved from https://www.khanacademy.org
  • Engineering Economy. D. P. Kothari, John Wiley & Sons, 2016.

Related Assignments