Question

7.A company wants to buy a lease for a mine that has four more years of productive life. It estimates that the returns will be $2972 at the end of the first year, $48905 at the end of both second and fourth year, and $68800 at the end of the third year. Using an interest rate of 8.5% p.a., the net present value if the lease costs $100000 is:

(Give your answer to the nearest cent, omitting the dollar sign.)

10. An employee steals a sum of $76326 and a second sum of $175658 two years later from a company. Eventually the thief is caught, stands trial and is found guilty. The judge decides that the employee must reimburse the company by repaying the amount stolen plus 11.3% p.a. interest (compounded monthly) calculated over the period since it was stolen. It is now six years since the first offence. How much has to be repaid?

(Give your answer to the nearest cent, omitting the dollar sign.)

Answer 1

Answer (7) :- Cash flow -

year 1 = $2972

year 2 = $48905

year 3 = $68800

year 4 = $48905

initial investment = $100000

Interest rate = 8.5%

NVP = Cash flow/ (1 + i )^t - initial investment (i = interest rate , t = time period)

NVP = $2972/1.085 + $48905/(1.085)² + $68800/ (1.085)³ + $48905/ (1.085)⁴ - $100000

NVP = $2739.1705 + $41546.0415 + $53867.8359 + $35290.0851 - $100000

NVP = $133443.133 - $100000

NVP = 33443.133

Answer (10):- compound interest = P( 1+r/n)^nt

(P = principal amount , r = rate of interest , n = number of period, t= number of time period elapsed)

^{( r = 11.3% = 0.113)}

Total repaid = $76326(1+0.113/12)^6x12 + $175658(1+0.113/12)^4x12

Total repaid = $148482.734 + $275454.930

Total repaid =$423937.66