Exam 4: The Time Value of Money

A major electronics manufacturer expects to generate additional revenue from its recently won government contract. The company forecasts that the revenue will be $190 million in the first year, but will decline by $2 million every year for the next 3 years. What is the present worth of total revenue at an interest rate of 18% per year?

How much must be deposited each month for 8 months at an interest rate of 5% per month to allow for a single withdrawal of $44,500 at the same time as the last deposit?

A U.S. auto maker plans to build two more plants in China as it aims to harness continued growth in Asia. The company estimates that it must make annual investments of $40 million over a 8- year period. How much would the company have to invest now at an interest rate of 3% per year to sufficiently provide for the annual payments, if the first payment will begin 4 years from now?

Drugs, Inc. recently received approval from the Food and Drug Administration for its new supplemental drug application for a 300- milligram tablet of an antiplatelet treatment. The company invested $170 million in the research and development fund for this drug application 7 years ago. What is the present worth of the investment now, if the company achieves a rate of return of 2% per year?

An Australian- based energy drink manufacturer plans to expand its international markets to the untapped East- Asian region. The company expects that the expansion will bring additional net income of $30 million in the first year of the operation and amounts increasing by $4.5 million for the next 8 years. What is the annual equivalent amount of the net income at an interest rate of 13% per year?

Costs for maintaining buildings at an industrial complex over a 13- year period are expected to be $5400 in year 1, increasing at the rate of 15% per year through year 13. At an interest rate of 15% per year, what present worth (at time 0) is equivalent to the series of maintenance costs?

What is the effective interest rate per 6 months for a nominal interest rate of 15% per year compounded every 3 months?

A Japanese carmaker plans to expand its production in the United States. The company borrowed $170 million for this expansion at an interest rate of 8% per year. The loan will be repaid in equal payments at the end of each year over a 15- year period. What is the amount of the annual payment?

Barney's Liquids and Aunt Bee's Lemonade plan to expand their international partnership for the marketing and distribution of ready- to- drink tea products by adding 11 countries to their current markets. If the agreement is reached, operations are expected to begin 2 years from now. The snack and beverage company forecasts that the agreement will bring additional revenue of $80 million in the first year of the operation of the total revenue if the interest rate of 17% per year?

What is the amount of interest earned on $900 for 8 years at 10.5% simple interest per year?