1- Future value of an ordinary annuity. What is the future value of $500 per year for 10 years compunded annually at 5 percent? Round to the nearest cent.
2- Present value of an ordinary annuity. What is the present value of $3000 per year for 8 years discounted back to the present at 11 persent? Round to the nearest cent.
3- Present value of a growing perpetuity. What is the present value of a perpetual stream of cash flows that pays $40,000 at the end of year one and then grows at a rate of 5 percent year indefinitely? The rate of interest used to discount the cash flows is 13 percent. Round to the nearest cent.
4- Present value of complex cash flow. How much do you have to deposit today so that beginning 11 years from now you can withdraw $10,000 a year for the next 5 years (periods 11 through 15) plus an additional amount of $20,000 in the last year (period 15)? Assume an interest rate of 6 percent round to the nearest cent.
5- Break even analysis. The marvel mfg company is considering whether or not to construct a new robotic production facility. The cost of this new facility is $600,000 and it is expected to have a six year life with annual depreciation expense of $100,000 and no salvage value. Annual sales from the new facility are expected to be 2,000 units with price of $1,000 per unit. Variable production costs are $600 per unit and fixed cash expenses are $80,000 per year.
A) Find the accounting and the cash break even units of production
B) Will the plant make a profit based on its current expected level of operation
C) Will the plant contribute cash flow to the firm at the expected levels of operations, round to the nearest whole number.
6- Break even analysis. Farrington Enterprises runs a number of sporting goods businessess and is currently analyzing a new t-shirt printing business. Specfically, the company is evaluating the feasibility of this business based on its estimates of units sales, the price per unit, variable cost per unit and fixed costs. The company’s initial estimates of annual sales and other critical variables are shown here.
Units sales- 5,000
Price per unit- 12.00
Variable cost per unit – 8.00
Fixed cash expense per year 10,000
Depreciation expense – 5,000
A) Calculate the accounting and cash break even annual sales volume in units
B) Bill Farrinton is the grandson of the founder of the company and is currently enrolled in his junior year at the local state university. After reviewing the accounting break even calculation done in part A, Bill wondered if the depreciation expenses should be included in the calculation. Bill had just completed his first finance class and was well aware that depreciation is not an actual out of pocket expense, but an allocation of the cost the printing equipment used in the business over its useful life. What do you think? What do the cash and accounting breal even points tell you? The accounting breal even units of production is ? round to the nearest integer.
