Reference no: EM131157285
Case- The Time Value of Money and Financial Statement Analysis
Solving Present Value and Future Value Problems
You are the CFO (Chief Financial Officer) of ABC Golf Equipment Corporation, a small company that sells golf equipment. Mr. Hillbrandt, the new CEO (Chief Executive Officer) has a marketing background and is trying to learn more about the financial side of running a business. He wants your help and asks for an introduction to the concept of time value of money.
The value of a typical corporate bond is the present value of an annuity plus the present value of a lump sum. Thus, if an individual does not understand how to calculate the present value of a lump sum or the present value of an annuity, it is difficult to determine the value of a typical corporate bond. Thus, in this case assignment, you will work through a variety of time value of money problems to illustrate the idea to the CEO.
The following websites include a number of formulae and financial calculators, including Present Value, Future Value, and Annuity:
Financial calculators. (2015). Calculator Soup. Retrieved from https://www.calculatorsoup.com/calculators/financial/
Carther, S. (2015). Calculating the present and future value of annuities. Investopedia. Retrieved from https://www.investopedia.com/articles/03/101503.asp
Required:
Compute and show your work for the following scenarios:
Calculate the present value of the following lump sums:
- $100,000 to be received five years from now with a 5% annual interest rate
- $200,000 to be received 10 years from now with a 10% annual interest rate
Calculate the future value of the following lump sums:
- $100,000 if invested for five years at a 5% annual interest rate
- $200,000 if invested for 10 years at a 10% annual interest rate
Calculate the present value of these ordinary annuities:
- $100,000 to be received each year for five years with a 5% annual interest rate
- $200,000 to be received each year for 10 years with a 10% annual interest rate
Calculate the future value of these ordinary annuities:
- $100,000 if invested each year for five years at a 5% annual interest rate
- $200,000 if invested each year for 10 years at a 10% annual interest rate
Calculate the present value of these perpetuities:
- $100,000 to be received each year forever with a 5% annual interest rate
- $200,000 to be received each year forever with a 10% annual interest rate
Computations (use Excel).
1. Show the computations as required above.
2. Summarize the results in an easy to read table at the top of the spreadsheet or on a clearly labeled separate tab.
Memo (use Word).
Interpret the results from the computations and explain how the information is useful. Write a four or five paragraph memo to the CEO. Start with an introduction and end with a conclusion or recommendation. Each of the four or five paragraphs should have a heading.
Short Essay (use Word).
Do research and write a short essay to comment on the use of bonds by public corporations. The emphasis of the essay could be either
- A discussion of different types of bonds; or
- The use of bonds in different industries.
Start with an introduction and end with a summary or conclusion. Use headings. Don't forget to reference your sources. Maximum length of two pages.
What is the dollar amount of income
: Barbara purchased a piece of real estate last year for 85,000. The real estate is now worth 102,000. If Barbara needs to have a total return of 25 percent during the year then what is the dollar amount of income that she needed to have reached her..
|
What is the dollar amount of income
: Barbara purchased a piece of real estate last year for 85,000. The real estate is now worth 102,000. If Barbara needs to have a total return of 25 percent during the year then what is the dollar amount of income that she needed to have reached her..
|
Plan and implement human resourcing
: You are expected to deploy resourcing strategies to plan and implement - recruitment of four customer Service representatives plan entice recruitment process
|
What is the current yield
: The 8 percent, $1,000 face value bonds of Sweet Sue Foods are currently selling at $1,084. These bonds have 16 years left until maturity. What is the current yield?
|
Calculate the present value
: Compute and show your work for the following scenarios: Calculate the present value of the following lump sums: $100,000 to be received five years from now with a 5% annual interest rate
|
What do they say about current cultural values
: What is the story and the symbolism involved with the elements in the visual message? What do they say about current cultural values?
|
Impact of your previous responses to your operations
: Elaborate your own definition of production operations management, including manufacturing and service operations. Then, assess the implication of technology in your definition. Lastly, appraise the impact of your previous responses to your Operat..
|
Projected irrs and costs of capital
: Harris Company must set its investment and dividend policies for the coming year. It has three independent projects from which to choose, each of which requires a $3 million investment. These projects have different levels of risk, and therefore d..
|
Calculating the expected profit
: Do 100 simulations on a worksheet and determine the probability Hatch is successful with each of these choices and determine the best of these three by calculating the expected profit.
|