TVM Problem questions fundamental of finance PDF

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TVM Problem questions fundamental of finance course...

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Time value of Money Assume that a Rs .2000000 plant expansion is to be financed as follows. The company makes a 15% down payment and borrows the remainder at 9% interest rate. The loan is to be repaid in 8 equal annual installments beginning 4 years from now. What is the size of required annual loan payments?

Solution.

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2201500 Rs. 2000000 300000 Rs. 1700000 Loan FV3 = Pv x CVF (9%, 3) = 1700000 x 1.2950 = 2201500

PV = Annuity amount x PVAF (9%, 8) 2201500 = Annuity amount x 5.5348 Annuity amount = 2201500/5.5348 = 397756 x 8 = 3182048

Solution 2: FV11 = Pv x CVF (9%, 11) =1700000 x 2.5804 = 4386680 FV= Annuity amount x CVAF (9%, 8) 4386680 = Annuity amount x 11.0285 Annuity amount = 4386680 / 11.0285 = 397758 x 8 = ……..

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4386680

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3107600

FV7 = Pv x CVF (9%, 7) = 1700000 x 1.8280 = Rs. 3107600

Annuity amount x CVAF (9%, 4) + Annuity amount x PVAF (9%, 4) = 3107600 Annuity amount [ CVAF (9%, 4) + PVAF (9%, 4)] = 3107600 Annuity amount [ 4.5731 + 3.2397] = 3107600 Annuity amount = 3107600 / 7.8128 = 397757

Present Value of Perpetuity (Infinite Returns):

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PV = Annuity amount /rate = 10,000/ 0.1 = 100000 /-

100000 x 10/100 = 10000

(PVAF (10%, n)

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infinites...