Tarik Begić

Developing Financial Insights Using a Future Value (FV)

and a Present Value (PV) Approach

The case deals with the calculation of the future value and present value and its use in
making financial decision. It starts with basic formulas for calculating the present and
future values of a single payment. It also explains the way to calculate the present and
future values of a stream of cash flows. But the thing I learned from case is the way to
simplify those calculations by using premade tables, which provide combinations of the
duration and interest rates on the cash flow and give numbers which simplify the NPV
formula immensely.

The problems were not really hard, except the fourth and fifth. I was not sure how to
implement the tax deductibles in the calculation, so I assumed that the tax income is
cancelled by the tax deductible from depreciation. Here are the solutions to the problems.

1)

a) -25000 + 15000*(1.08)5=-25000 + 15000*1.46933=-25000 + 22039.92=-

2960.0789

b) -25000+(500*6,336)+(15000*1.085)=-25000+3168+22039.92=207.92

2)

a) 50000000/1.184=25789413.961

b) x*2,690=25789413.961

x=9587142.736

3)

40000*8.384=335360

a) 48000*7.360=353280

b) 50000*4.917+30000*(8.384-4.917) = 245850+104010=349860

4)
 a) -45000+(8000*5.747)=976

b) -45000+8000*3.993+4800*(5.747-3.993)=-45000+31944+8419.2=-4636.8

5)

-6000000+220000*6.710-100000*6.710=-6000000+805200=-5194800

NO INFORMATION ABOUT INCOME FROM THE INVESTMENT WAS PROVIDED, SO

THE INCOME NEEDED TO REACH AN NPV OF ZERO IS 5194800.

6)

-520000+100000*X=0

X=5.2

(X is the parameter in the table which combines a certain duration and interest)

6 years - 4% (BASED ON EXHIBIT 4)

10 years - 14% (BASED ON EXHIBIT 4)