Balanza

Chapter 7

Rate of Return Analysis: Single Alternative


Solutions to Problems

7.1 A rate of return of –100% means that the entire investment is lost.

2. Balance = 10,000(1.50) – 5(2638)
= $1810

3. (a) Annual payment = [10,000/4 + 10,000(0.10)]
= $3500

(b) A = 10,000(A/P,10%,4)
=10,000(0.31547)
= $3154.70

4. Monthly pmt = 100,000(A/P,0.5%,360)
= 100,000(0.00600)
= $600

Balloon pmt = 100,000(F/P,0.5%,60) – 600(F/A,0.5%,60)
= 100,000(1.3489) – 600(69.7700)
= $93,028

5. 0 = -150,000 + (33,000 – 27,000)(P/A,i,30)(P/A,i,30) = 25.0000
i = 1.2% per month (interpolation or Excel)

6. 0 = -400,000 + [(10(200) + 25(50) +70(100)](P/A,i%,48)
(P/A,i%,48) = 39.0240

Solve by trial and error or Excel
i = 0.88% per month (Excel)

7. 0 = -30,000 + (27,000 – 18,000)(P/A,i%,5) + 4000(P/F,i%,5)

Solve by trial and error or Excel
i = 17.9 %(Excel)


8. 0 = -130,000 – 49,000(P/A,i%,8) + 78,000(P/A,i%,8) + 1000(P/G,i%,8)
+ 23,000(P/F,i%,8)

Solve by trial and error or Excel
i = 19.2% (Excel)

9. (100,000 – 10,000)i = 10,000
i = 11.1%

10. 0 = -10 – 4(P/A,i%,3) - 3(P/A,i%,3)(P/F,i%,3) + 2(P/F,i%,1) + 3(P/F,i%,2)
+ 9(P/A,i%,4)(P/F,i%,2)Solve by trial and error or Excel
i = 14.6% (Excel)

11. (a) 0 = -(220,000 + 15,000 + 76,000)(A/P,i%,36) + 12,000(2.00 – 1.05) + 2000
+ 100,000(A/F,i%,36)
0 = -(311,000)(A/P,i%,36) + 13,400 + 100,000(A/F,i%,36)

Solve by trial and error or Excel
i = 3.3% per month (Excel)

(b) Nominal per year =3.3(12)
= 39.6% per year

Effective per year = (1 + 0.396/12)12 – 1
= 47.6% per year

12. 0 = -40 – 28(P/A, i%,3) + 5(P/F,i%,4) + 15(P/F,i%,5) + 30(P/A,i%,5)(P/F,i%,5

Solve by trial and error or Excel
i = 5.2% per year (Excel)

13. (a) 0 = -41,000,000 +55,000(60)(P/A,i%,30)

Solve by trial and error or Excel
i = 7.0% per year (Excel)

(b) 0 = -41,000,000 + [55,000(60) + 12,000(90)](P/A,i%,30)
0 = -41,000,000 + (4,380,000)(P/A,i%,30)

Solve by trial and error or Excel
i = 10.1% per year (Excel)

14. Cash flow tabulation is below. Note that bothseries end at the end of month 11.

Month M3Turbo M3Power Difference
0 -7.99 -(14.99 + 10.99) -17.99
1 -7.99 0 +7.99
2 -7.99 -10.99 - 3.00
3 -7.99 0 + 7.99
4-7.99 -10.99 - 3.00
5 -7.99 0 +7.99
6 -7.99 -10.99 -3.00
7 -7.99 0 +7.99
8 -7.99 -10.99 -3.00
9-7.99 0 +7.99
10 -7.99 -10.99 - 3.00
11 -7.99 0 +7.99

(a) 0 = -17.99 + 7.99(P/F,i%,1) – 3.00(P/F,i%,2) + 7.99(P/F,i%,3) – 3.00(P/F,i%,4)
+ ... + 7.99(P/F,i%,9) – 3.00(P/F,i%,10) + 7.99(P/F,i%,11)...