You have to use a spreadsheet program (Microsoft Excel) to solve all the problems given below. The Excel sheet should be an active sheet – i.e. the formula should be enabled in each cell, DO NOT just copy & paste the values or manually input the values in the cells. If so, you will be awarded zero points. This project will help you become familiar with Excel, which will be useful in your future classes and even at work.

**PROBLEM # 1:**

You have just turned 22, and you intend to start saving for your retirement. You plan to retire in 41 years when you turn 63. During your retirement you would like to have an annual income of $165,000 per year for the next 28 years (until age 91).

· Calculate how much has to be in your account before the first withdrawal at age 64. (**2 points**)

· Calculate how much would have to save annually between now and age 63 in order to finance your retirement income and to fill that account. (**2 points**)

Make the following assumptions:

· Assume that the relevant compounded interest rate is 9 percent for all 69 years.

· You make the first payment today and the last payment on the day you turn 63.

· You make the first withdrawal when you turn 64 and the last withdrawal when you turn 91.

**PROBLEM # 2:**

You just took a $125,000, seven-year loan. Payments at the end of each month are flat (equal in every month) at an annual interest rate of 4.75 percent.

Calculate the monthly payment. (**1 point**)

Provide the appropriate loan table, showing the breakdown in each month between principal repayment and interest. (**2 points**)

**PROBLEM # 3:**

You are offered an asset that costs $14,000 and has cash flows as follows below at the end of each quarter for the next 8 years. Then it will be sold for $2,500. Your cost of capital is 6.5 percent. An alternative (mutually exclusive) project is available which offers an accounting rate of return of 8%, a classical payback period of 5 years and a discounted payback period of 5 years.

Year 1: $800 each quarter

Year 2: $850 each quarter

Year 3: $850 each quarter

Year 4: $950 each quarter

Year 5: $800 each quarter

Year 6: $600 each quarter

Year 7: $500 each quarter

Year 8: $400 each quarter

a) What is the IRR of the asset? (**2 points**)

b) What is the NPV of the asset? (**1 point**)

c) What are the PI and NPI of the asset? (**1 point**)

d) What are the classical and discounted payback periods? (**1 point**)

e) What are the four accounting rate of returns (utilizing cash flows)? (**1 point**)

f) Should you purchase it? Base your answer on your solutions of a) to e) (**2 points**)

(A simple yes or no is not enough.)

(Use your calculator to make sure that the answers are correct. Read chapter 19 before you start doing the problem.)

Subject | Business |

Due By (Pacific Time) | 11/25/2013 12:00 am |

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