Assignment #5

This material is copyrighted. It should not be reproduced elsewhere.

Copyright © 2024 by John J. Hatem, GSU
Due Wednesday, April 24th, 2024 at the beginning of class
Hand in this sheet with the answers.
Put your excel file in the Assignment #5 dropbox on folio

1. Given the following cashflows determine the amount of the missing cashflow that gives a FV
equal to $2000 with a discount/compound rate of 5% a year.

year 0 1 2 3 4 5 6 7
cashflo $1,000.0
w -$100.00 $200.00 $500.00 0 $300.00 $700.00 $100.00

2. Parkers offers 10 cents off a gallon for every $25 spent in the store up to 25 gallons. A cash
back credit card offers 5% back on gas purchases. What would be the savings if an individual
bought 25 gallons of gas at $3.10 a gallon with a cash back card? What would be the savings
from using the Parker rewards of 10 cent off per gallon? Which is better? Explain.

3. A couple has a 30 year, 4% annual interest rate mortgage on a property that was worth
$300,000 at the time they bought it. They originally put 20% down. What would be their
monthly payment? After 5 years, they are thinking of paying off the mortgage by adding $100 a
month to their payment. Their other choice is to take the $100 a month and put it in a high yield
savings account earning 4.3% a year.

How long will it take to pay off the mortgage by adding the extra $100 a month to the payment?
What would be the total savings from paying off the mortgage? Using the length of time it takes
to pay off the mortgage after the initial 5 years, how much would the $100 a month be worth if
put in the high yield savings account? Which is better? Why?

4. Use the data on folio called “assign #5 data”. Instead of taking the $100 each month from the
above question and putting it in a high yield savings account, the couple put the $100 each month
into MSFT or the SPY. How much would they have at the end of the data in each? How does
that compare to the savings account above?

5. A 2 liter bottle of Coke costs $2.68. A 6 pack of 16.9 ounce bottles costs $3.98. Determine the
price per ounce for each of the items.

6. A company’s Net Profit Margin is 25%. Its sales revenue is $10 million, Total A are $5.6
million and the D/E ratio is 0.4. What is the ROE?
 7 6 5 4 3 2 1 0
1 yr 0 1 2 3 4 5 6 7
CF -100 200 500 1000 -990.57 300 700 100
FV ($140.71) $268.02 $638.14 $1,215.51 ($1,146.71) $330.75 $735.00 $100.00

Rate 5% Net FV $2,000.00

2 Use Parker's card Use credit card

gallons 25 Price w/o dis 77.5 gallons 25 Price w/o dis 77.5
discount 0.1 Price w/ dis 75 price per 3.1 Price w/ dis 73.625
price per 3.1 Savings 2.5 return per gallon 0.155 Savings 3.875
net price 3 net price 2.945
% discount 3.23% % discount 5.00%

The credit card offers a better return on dollars spent. Parkers card will give you a discount of 3.23%per gallon, or .10 cents,
while the credit card will give you 5%, ot .155 cents off. This model dosen't take into account that you must spend
exorbitant amounts of money on things inside of Parker's to take advantage of this deal.

3 value $300,000 80% Interest expense saved w/xtra payment $ 18,250.66

down $60,000 20% Paid off in 322 months instead of 360
financed $240,000
n 30 360 The high yield savings account is a better option
rate 4% 0.0033 This is because it offers a greater rate of return on the
pmt ($1,145.80) money due to the difference of .30%a year

High yield savings account

Deposit $100
Rate 4.30% 0.0036
N 300
FV $53,703.31

4 Acct Ending Value Annualized Return

HYSA $ 53,703.31 4.30%
MSFT $ 274,680.87 15.83%
SPY $ 84,108.65 9.23%

Retail Price Oz Price per Oz

5 2 liter $2.68 67.63 $0.040
6 pack 16.9oz $3.98 101.4 $0.039

6 Net Profit Margin 25% Net Income $2,500,000

Sales $10,000,000 Liabilities $1,600,000
Total Assets $5,600,000 Equity $4,000,000
Debt/Equity 0.4 TL/ TE

ROE = NPM x AT x EM
0.63 25% 1.79 1.40