Great Deal! Get Instant $10 FREE in Account on First Order + 10% Cashback on Every Order Order Now

ASSIGNMENT DETAILS IS PROVIDED BELOW IN TWO IMAGES.THE REQUIREMNTS ARE AS FOLLOWS-High level oral and written communication skill is consistently rated the most important attribute of finance and...

1 answer below »
ASSIGNMENT DETAILS IS PROVIDED BELOW IN TWO IMAGES.THE REQUIREMNTS ARE AS FOLLOWS-High level oral and written communication skill is consistently rated the most important attribute of finance and accounting professionals by the professional bodies. It is important that text responses are well written and that the written work (including formulae) have a professional level of presentation and formatting. The Academic Learning Support team can provide guidance of a non-technical nature to assist students who are having difficulty composing grammatically correct text responses.
In the assignment students are expected to write out the appropriate formula that they have selected to solve specific finance problems and show all workings. In terms of presentation for formula a guide to using Microsoft Equation will be available on the subject Interact site and it is recommended that students adopt this tool for completing complex formulae in a professional manner within a Word Document.
As per the CSU Referencing Policy, each assessment item must indicate the style of referencing required for each task. Students should be directed to a single Guide that supports the required referencing style for each assessment task. For those tasks requiring the use of APA, students should be directed to the CSU Referencing website at http://student.csu.edu.au/study/referencing-at-csu
Answered Same Day Apr 03, 2020

Solution

Brijesh answered on Apr 06 2020
124 Votes
Question 1:
a) Since Sandy would receive these cash-flows in future, “Time-value of money” concept comes in picture here. The maximum amount to be paid for this investment should not be more than “Present Value” of all future cash-flows discounted at the relevant interest rate.
Formula:
Present Value = [(Cash Inflow1)/(1+r)1] + [(Cash Inflow2)/(1+r)2] + [(Cash Inflow3)/(1+r)3]…..+ [(Cash Inflown)/(1+r)n]
Where, “r” is interest rate and “n” is number of years.
Maximum amount to be paid for this investment opportunity
· ($400/1.09) + ($800/1.092) + ($500/1.093) + ($400/1.094) + ($300/1.095)
· ($400/1.09) + ($800/1.1881) + ($500/1.295029) + ($400/1.41158161) + ($300/1.538623955) = $1,904.76
So, Sandy should pay $1,904.76 at most for this investment opportunity.
) The cash-flow stream required here qualifies as “Annuity Due”, since the payment is made at the start of each period. So, to calculate the quarterly payment to pay off the loan in 20 installments, we would need to use below formula.
Formula:

Where,
“Pmt” is periodic payments to payoff loan,
“r” is interest rate = 10%/4 = 2.5% (Since a year has 4 quarters and interest quoted is annual)
and “n” is number of periods = 20 quarterly payments
· Pmt = $100,000*[0.025/(1)-((1+0.025)-20)] * [1/(1+0.025)]
· $100,000 * 0.064147129 * 0.975609756
· $100,000*0.062582565 = $6,258.26
So, Lee has to make quarterly payment of $6,258.26 to pay-off the loan with 20 payments.
c) Since Dianne would start receiving her monthly payments after two years, firstly future value of $200,000 invested today needs to be calculated.
Formula: Future Value = Present Value * (1+r)n
Since the interest is compounded monthly, we would compound the periods as well.
So, r = 0.10/12 = 0.008333333
n = 2 Years * 12 = 24
Future value = $200,000*(1.008333333)24
=> $200,000*1.220390961 = $244,078.19
Now, to calculate monthly payment, we would use “Annuity Due Payments” formula as the first payment is being made at the start of the month.
Formula:
PV = $244,078.19
= 0.008333333
n = 150
Monthly Payments
· $244,078.19*[(0.008333333)/((1)-(1.008333333)-150]*(1/1.008333333)]
· $244,078.19*0.011703999*0.991735538
· $244,078.19*0.011607272 = $2,833.08
So, Dianne will receive $2,833.08 as monthly payments for 150 months.
Question 2:
i) Timeline:
    %
     
    8%
    6%
    7%
    Yea
    0
    1
    2
    3
    4
    5
    6
    7
    8
    9
    10
     
     
     
     
     
     
     
     
     
     
     
     
    CFi
    $0
    $0
    $6,500
    $1,500
    $0
    $0
    -$2,500
    $0
    $0
    $10,000
    $0
ii) In order to determine value of all cash-flows, we would need to determine cu
ent value of funds on a specific timeline. Since there are cash-flows that occu
ed before the timeline and after the timeline, we would need to determine both; Present Value and Future Value. A cash-flow occu
ing after the targeted period would be taken to present value and a cash-flow occu
ing before the targeted period would be taken to future value.
Value at Time1:
    Yea
    Cash-Flow
    Interest Rate
    Present Value at Time1
    Future Value at Time 1
    Value of Cash-flow at Time1
    1
    $0
    8%
    $0.00
    $0.00
    $0.00
    2
    $6,500
    8%
    $5,572.70
    $0.00
    $5,572.70
    3
    $1,500
    6%
    $1,259.43
    $0.00
    $1,259.43
    4
    $0
    6%
    $0.00
    $0.00
    $0.00
    5
    $0
    6%
    $0.00
    $0.00
    $0.00
    6
    -$2,500
    6%
    -$1,762.40
    $0.00
    -$1,762.40
    7
    $0
    6%
    $0.00
    $0.00
    $0.00
    8
    $0
    6%
    $0.00
    $0.00
    $0.00
    9
    $10,000
    7%
    $5,439.34
    $0.00
    $5,439.34
    10
    $0
    7%
    $0.00
    $0.00
    $0.00
    Net Value at Time1
    $10,509.07
Value at Time5:
    Yea
    Cash-Flow
    Interest Rate
    Present Value at Time5
    Future Value at Time5
    Value of Cash-flow at Time5
    1
    $0
    8%
    $0.00
    $0.00
    $0.00
    2
    $6,500
    8%
    $0.00
    $8,188.13
    $8,188.13
    3
    $1,500
    6%
    $0.00
    $1,685.40
    $1,685.40
    4
    $0
    6%
    $0.00
    $0.00
    $0.00
    5
    $0
    6%
    $0.00
    $0.00
    $0.00
    6
    -$2,500
    6%
    -$2,358.49
    $0.00
    -$2,358.49
    7
    $0
    6%
    $0.00
    $0.00
    $0.00
    8
    $0
    6%
    $0.00
    $0.00
    $0.00
    9
    $10,000
    7%
    $7,628.95
    $0.00
    $7,628.95
    10
    $0
    7%
    $0.00
    $0.00
    $0.00
    Net Value at Time5
    $15,143.99
Value at Time10:
    Yea
    Cash-Flow
    Interest Rate
    Present Value at Time10
    Future Value at Time10
    Value of Cash-flow at...
SOLUTION.PDF

Answer To This Question Is Available To Download