TABLE 10-1 Annual Interest Payments and Tax Savings for a Five-Year Loan
Amount
Borrowed
Annual Interest
Rate
Number of
Months
Monthly
Payment
Income Tax
Rate
100,000.00$ 11.00% 60 $2,174.24 28.00%
126,090.91$ 15,875.48$ 10,215.43$ $2,860.32
226,090.91 17,712.57$ 8,378.34 2,345.94
Principal
Payment
Interest
Payment
Year
Annual Loan
Payment
TABLE 10-2 NPV of an Automobile Purchase
Present Present
BENEFITS PVAF at Value PVAF at Value
Item 10.00% at 10% 14.00% at 14%
Cash flow $10,000.00 per year 3.7908 $37,908.00 3.4331 $34,331.00
Salvage value $4,000.00 end of 5 years 0.6209 2,483.60 0.5194 2,077.60
PVB $40,391.60 $36,408.60
COSTS
Cash Flow per time period
TABLE 10-3, Four Year Projected Cash Flow Interest
Rate
Year
Projected
Cash Flow
10.00%
0
(66,000.00)
Initial Investment: $66,000.00
WACC
10.00%
Year Cash Flow
0 (66,000.00)
121,000.00$
TABLE 10-4, Present Value of
an Unequal Stream of
Projected Cash Benefits
Table 10-5 Lowest Total Cost (LTC) of a Truck Purchase
Category Quantity
Fuel cost per gallon 3.97$
Category
(Costs) and
Benefits
PV
(Costs) and
Benefits
PV
(Costs) and
Benefits
PV
Mileage Per gallon 16 13 15
Purchase Price (26,955.00)$ (26,955.00)$ (25,695.00)$ (25,695.00)$ (30,556.00)$ (30,556.00)$
Truck Model A
Truck Model B
Truck Model C
Capital Cumulative Net
Business Investment Investment Present
Location Cost Cost Value
150,000$ 50,000$ 125,000$
246,000 96,000 121,000
352,000 148,000 119,000
TABLE 10-6 Capital Budgeting Choices
Answers to problem 6a, b, c, d &e
Cost of
capital =
10.00%
Year Amount
PV factor Present Value
Payback
in Years
0 (66,000) 1.0000 $ (66,000.00) (66,000)
121,000 0.9091 $19,090.91 (45,000)
229,000 0.8264 23,966.94 (16,000)
Answers to problem 7a, b, c, d &e
Cost of
capital =
10.00%
Year Amount
PV factor Present
Value
Payback
in Years
0 (75,000) 1.0000 $ (75,000.00) (75,000)
115,000 0.9091 $13,636.36 (60,000)
215,000 0.8264 $12,396.69 (45,000)
Answer to problem 8b
Cost of
Capital=
8.00%
Item Cost PV factor
Present
Value
Answer to Question 9
Item Freezer A PV Factor
Present
Value
Freezer B
Present
Value
Investment required ($29,000) 1.0000 (29,000.00)$ ($25,000) (25,000.00)$
Solution to Problem 12c
Item
Cost
Time Period PV factor
PV of Costs
FAX 500.00$ Now 1 500.00$ #################### #### #############
Installation
###### ############## Now 1 300.00 ####################
Van down payment
######## ############ Now 1 4,000.00 ####################
FAX service
Van maintenance
Total Monthly
PV of total costs
Item Freezer A PV Factor
Present
Value
Freezer B
Present
Value
Investment required ($25,000) 1.0000 (25,000.00)$ ($30,000) (30,000.00)$
Annual electrical bill (3,600) 7.8869 (28,392.75) (4,000) (31,547.50)
5 year loan amortization table used to generate Table 9-1
PRINCIPAL ANNUAL INTEREST PAYMENTS PAYMENT
100,000$ 5.00% 60 $1,887.12
NO LOAN BALANCE PRINCIPAL PAYMENT INTEREST PAYMENT
100,000.00$
1$98,529.54 $1,470.46 416.67$ $1,887.12
297,052.96 1,476.58 410.54 1,887.12
395,570.22 1,482.74 404.39 1,887.12
494,081.31 1,488.91 398.21 1,887.12
592,586.19 1,495.12 392.01 1,887.12
691,084.84 1,501.35 385.78 1,887.12
789,577.24 1,507.60 379.52 1,887.12
888,063.36 1,513.88 373.24 1,887.12
986,543.16 1,520.19 366.93 1,887.12
21 67,799.16 1,597.97 289.15 1,887.12
22 66,194.53 1,604.63 282.50 1,887.12
23 64,583.22 1,611.31 275.81 1,887.12 3,666.20$ INT
24 62,965.19 1,618.03 269.10 1,887.12 $18,979.28 PRIN
36 43,014.90 1,700.81 186.32 1,887.12 $19,950.30 PRIN
37 41,307.00 1,707.89 179.23 1,887.12
38 39,591.99 1,715.01 172.11 1,887.12
39 37,869.84 1,722.16 164.97 1,887.12
51 16,635.61 1,810.27 76.86 1,887.12
52 14,817.81 1,817.81 69.32 1,887.12
53 12,992.42 1,825.38 61.74 1,887.12
54 11,159.43 1,832.99 54.14 1,887.12
60 0.00 1,879.29 7.83 1,887.12 $22,043.91 PRIN