127967716.xls.

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A 1 2 3 4 5 6 7 8

FUTURE VALUE OF A SINGLE AMOUNT

Present value $800 Interest rate, pct per year compounded annually 6% Number of years 5 Future value $1,070.58 Entry in Cell B5 is =FV(B3,B4,0,B2,0). The minus sign appears before B2 because the present value is an outflow (i.e., a deposit made by Jane Farber).

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A 1 2 3 4 5 6 7 8

PRESENT VALUE OF A SINGLE AMOUNT

Future value $1,700 Interest rate, pct per year compounded annually 8% Number of years 8 Present value $918.46 Entry in Cell B5 is =PV(B3,B4,0,B2). The minus sign appears before PV to change the present value to a positive amount.

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FUTURE VALUE OF AN ORDINARY ANNUITY

Annual payment $1,000 Annual rate of interest, compounded annually 7% Number of years 5 Future value of an ordinary annuity $5,750.74 Entry in Cell B5 is =FV(B3,B4,B2) The minus sign appears before B2 because the annual payment is a cash outflow.

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A 1 2 3 4 5 6 7 8

PRESENT VALUE OF AN ORDINARY ANNUITY

Annual payment $700 Annual rate of interest, compounded annually 8% Number of years 5 Present value of an ordinary annuity $2,794.90 Entry in Cell B5 is =PV(B3,B4,B2). The minus sign appears before B2 because the annual payment is a cash outflow.

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A 1 2 3 4 5 6 7 8

FUTURE VALUE OF AN ANNUITY DUE

Annual payment $1,000 Annual rate of interest, compounded annually 7% Number of years 5 Future value of an annuity due $6,153.29 Entry in Cell B5 is =FV(B3,B4,B2,0,1). The minus sign appears before B2 because the annual payment is a cash outflow.

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A 1 2 3 4 5 6 7 8

PRESENT VALUE OF AN ANNUITY DUE

Annual payment $700 Annual rate of interest, compounded annually 8% Number of years 5 Present value of an annuity due $3,018.49 Entry in Cell B5 is =PV(B3,B4,B2,0,1). The minus sign appears before B2 because the annual payment is a cash outflow.

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FUTURE VALUE OF A MIXED STREAM

8% Year-End Cash Flow Year 1 $11,500 2 $14,000 3 $12,900 4 $16,000 5 $18,000 Future value $83,608.15 Entry in Cell B9 is =FV(B2,A8,0,NPV(B2,B4:B8)). The minus sign appears before FV to convert the future value to a positive amount. Interest rate, pct/year

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PRESENT VALUE OF A MIXED STREAM OF CASH FLOWS 1

2 3 4 5 6 7 8 9 10 11 Interest Rate, pct/year 9%

Year-End Cash Flow Year 1 $400 2 $800 3 $500 4 $400 5 $300 Present value $1,904.76 Entry in Cell B9 is =NPV(B2,B4:B8).

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A 1 2 3 4 5 6 7 8 9 10 11 12 13

FUTURE VALUE OF A SINGLE AMOUNT WITH SEMIANNUAL AND QUARTERLY COMPOUNDING

Present value $100 Interest rate, pct per year compounded semiannually 8% Number of years 2 Future value with semiannual compounding $116.99 Present value $100 Interest rate, pct per year compounded quarterly 8% Number of years 2 Future value with quarterly compounding $117.17 Entry in Cell B5 is =FV(B3/2,B4*2,0,B2,0). Entry in Cell B9 is =FV(B7/4,B8*4,0,B2,0). The minus sign appears before B2 because the present value is a cash outflow (i.e., a deposit made by Fred Moreno).

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1 2 Deposit $100 Annual rate of interest, compounded 8% 3 continuously 4 Number of years 2 5 Future value with continuous compounding $117.35 6 Entry in Cell B5 is =B2*EXP(B3*B4).

FUTURE VALUE OF A SINGLE AMOUNT WITH CONTINUOUS COMPOUNDING

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ANNUAL DEPOSIT NEEDED TO ACCUMULATE A FUTURE SUM

Future value $20,000 Number of years 5 Annual rate of interest 6% Annual deposit $3,547.93 Entry in Cell B5 is = PMT(B4,B3,0,B2). The minus sign appears before PMT because annual deposits are cash outflows.

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A 1 2 3 4 5 6 7 8

ANNUAL PAYMENT TO REPAY A LOAN

Loan principal (present value) $6,000 Annual rate of interest 10% Number of years 4 Annual payment $1,892.82 Entry in Cell B5 is =PMT(B3,B4,B2). The minus sign appears before PMT the annual payments are cash outflows.

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A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Year 0 1 2 3 4

D $6,000 10% 4

LOAN AMORTIZATION SCHEDULE

Data: Loan principal Annual rate of interest Number of years Annual Payments Total $1,892.82 $1,892.82 $1,892.82 $1,892.82 To Interest To Principal $ Year-End Principal 6,000.00 4,707.18 3,285.07 1,720.75 -

$600.00 $1,292.82 $470.72 $1,422.11 $328.51 $1,564.32 $172.07 $1,720.75 Key Cell Entries Cell B8: =PMT($D$3,$D$4,$D$2), copy to B9:B11 Cell C8: =CUMIPMT($D$3,$D$4,$D$2,A8,A8,0), copy to C9:C11 Cell D8: =CUMPRINC($D$3,$D$4,$D$2,A8,A8,0), copy to D9:D11 Cell E8: =E7D8, copy to E9:E11 The minus signs appear before the entries in Cells B8, C8, and D8 because these are cash outflows.

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A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

INTEREST OR GROWTH RATE SERIES OF CASH FLOWS

Year Cash Flow 2003 $1,520 2002 $1,440 2001 $1,370 2000 $1,300 1999 $1,250 Annual growth rate 5.01% Entry in Cell B8 is =RATE((A3A7),0,B7,B3,0). The expression A3A7 in the entry calculates the number of years of growth. The minus sign appears before B3 because the investment in 2003 is treated as a cash outflow.

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A 1 2 3 4 5 6 7 8

INTEREST OR GROWTH RATE ANNUITY

Present value (loan principal) $2,000 Years 5 Annual payment $514.14 Annual interest rate 9% Entry in Cell B5 is =RATE(B3,B4,B2). The minus sign appears before B2 because the loan principal is treated as a cash outflow.

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A 1 2 3 4 5 6 7 8

YEARS FOR A PRESENT VALUE TO GROW TO A SPECIFIED FUTURE VALUE

Present value (deposit) $1,000 Annual rate of interest, compounded annually 8% Future value $2,500 Number of years 11.91 Entry in Cell B5 is =NPER(B3,0,B2,B4). The minus sign appears before B4 because the future value is treated as a cash outflow.

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A 1 2 3 4 5 6 7 8

YEARS TO PAY OFF A LOAN

Annual payment $4,800 Annual rate of interest, compounded annually 11% Present value (loan principal) $25,000 Number of years to pay off the loan 8.15 Entry in Cell B5 is =NPER(B3,B2,B4). The minus sign appears before B2 because the payments are treated as cash outflows.

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A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

DETERMINING THE NET PRESENT VALUE

Firm's cost of capital 10% Year-End Cash Flow Year Project A Project B 0 $ (42,000) $ (45,000) 1 $ 14,000 $ 28,000 2 $ 14,000 $ 12,000 3 $ 14,000 $ 10,000 4 $ 14,000 $ 10,000 5 $ 14,000 $ 10,000 NPV $ 11,071 $ 10,924 Choice of project Project A Entry in Cell B11 is =NPV($C$2,B6:B10)+B5. Copy the entry in Cell B11 to Cell C11. Entry in Cell C12 is IF(B11>C11,B4,C4).

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1 2 Year-End Cash Flow 3 Year Project A Project B 4 0 $ (42,000) $ (45,000) 5 1 $ 14,000 $ 28,000 6 2 $ 14,000 $ 12,000 7 3 $ 14,000 $ 10,000 8 4 $ 14,000 $ 10,000 9 5 $ 14,000 $ 10,000 10 IRR 19.9% 21.7% 11 Choice of project Project B 12 Entry in Cell B10 is =IRR(B4:B9). 13 Copy the entry in Cell B10 to Cell C10. 14 Entry in Cell C11 is =IF(B10>C10,B3,C3).

DETERMINING THE INTERNAL RATE OF RETURN

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A 1 2 3 4 5 6 7 8

BREAKEVEN CASH INFLOW

Cost of capital 10% Number of years 15 Initial investment $10,000 Breakeven cash flow $1,314.74 Entry in Cell B5 is =PMT(B2,B3,B4). The minus sign appears before B4 because the initial investment is a cash outflow.

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A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year

ANALYSIS OF PROJECTS USING RISK-ADJUSTED DISCOUNT RATES

Present Formulas for Calculated Values in Cash Inflow Value Column C Project A 1-5 $ 14,000 $48,063 PV(C7,5,B4,0) Initial Investment 42,000 Net Present Value $ 6,063 C4C5 Required Return (RADR) 14% Project B 1 $ 28,000 $25,225 PV(C17,A9,0,B9,0) 2 12,000 9,739 PV(C17,A10,0,B10,0) 3 10,000 7,312 PV(C17,A11,0,B11,0) 4 10,000 6,587 PV(C17,A12,0,B12,0) 5 10,000 5,935 PV(C17,A13,0,B13,0) Present value $54,798 SUM(C9:C13) or NPV(C17,B9:B13) Initial Investment $45,000 Net Present Value $ 9,798 C14C15 Required Return (RADR) 11% Choice of project B IF(C6>=C16,"A","B") The minus signs appear before the entries in Cells C4 and C9:C13 to convert the results to positive values.

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1 2 Cost of Capital 10% 3 Year-End Cash Flows 4 Year Project X Project Y 5 0 $ (70,000) $ (85,000) 6 1 $ 28,000 $ 35,000 7 2 $ 33,000 $ 30,000 8 3 $ 38,000 $ 25,000 9 4 $ 20,000 10 5 $ 15,000 11 6 $ 10,000 12 NPV $ 11,277.24 $ 19,013.27 13 Choice of project Project Y 14 Entry in Cell B12 is 15 =NPV($C$2,B6:B11)+B5. 16 Copy the entry in Cell B12 to Cell C12. 17 Entry in Cell C13 is =IF(B12>=C12,B4,C4).

COMPARISON OF NET PRESENT VALUES OF TWO PROJECTS WITH UNEQUAL LIVES

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1 2 Cost of Capital 10% 3 Year-End Cash Flows 4 Year Project X Project Y 5 0 $ (70,000) $ (85,000) 6 1 $ 28,000 $ 35,000 7 2 $ 33,000 $ 30,000 8 3 $ 38,000 $ 25,000 9 4 $ 20,000 10 5 $ 15,000 11 6 $ 10,000 12 NPV $ 11,277.24 $ 19,013.27 13 ANPV $ 4,534.74 $ 4,365.59 14 Choice of project Project X 15 Entry in Cell B12 is 16 =NPV($C$2,B6:B11)+B5. 17 Copy the entry in Cell B12 to Cell C12. 18 Entry in Cell B13 is =B12/PV(C2,3,1). 19 Entry in Cell C13 is =C12/PV(C2,6,1). 20 Entry in Cell C14 is =IF(B13>=C13,B4,C4).

COMPARISON OF ANNUALIZED NET PRESENT VALUES OF TWO PROJECTS WITH UNEQUAL LIVES

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A 1

E Formulas for Weighted Scores and Total B3*C3 B4*C4 B5*C5 B6*C6 B7*C7 B8*C8 SUM(D3:D8)

CREDIT SCORING OF BARB BAXTER BY HALLER'S STORES

Financial and Credit Characteristics Credit references Home ownership Income range Payment history Years at address Years on job Weight or Relative Weighted Importance Score 0.15 12.00 0.15 15.00 0.25 17.50 0.25 18.75 0.10 9.00 0.10 8.00 1.00 80.25 Barb Baxter Standard credit

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 19

Score 80 100 70 75 90 80

Applicant's name: Action for this applicant:

Credit standards for Haller's stores Less than 65 Reject application 65 to 75 Extend limited credit. (Note 1) Greater than 75 Extend standard credit terms Note 1: If account is properly maintained, convert to standard credit terms after one year. Entry in Cell C11 is =IF(D9<65,"Reject",IF(D9<=75,"Limited credit","Standard credit")).

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