Durco Automotive needs a $2 million balance in its contingency fund 3 years from now.

The chief
1 financial officer (CFO) wants to know how much to deposit now into Durco’s high-yield investment
account.
Determine the amount if it grows at a rate of 10% per year using simple interest.
The amount if it grows at a rate of 10% per year using simple interest is

i 14% 1.42
F $2,000,000 $1,408,451
3
P $1,408,450.70

2
Ford Motor Company was able to reduce by 78% the cost required for installing data acquisition
instrumentation on test vehicles by using MTS-developed spinning wheel force transducers. The cost
this year (i.e., end of year 1) is expected to be $3900. the costs are expected to increase by $250
each year for the next 4 years, what is the equivalent annual worth of the costs (years 1–5) at an
interest rate of 7% per year?
The
If theequivalent annual worth
costs are expected is $
to increase by $250 each year for the next 4 years, what is
the equivalent annual worth of the costs (years 1–5) at an interest rate of 7% per
year?
The equivalent annual worth is $
3900
Ireduce 78% $0.075 4366.25
n 5 $0.935
g 250
i 7% 1.07 3644.8598

P $3,645 107%
P/A 4.1002
A/P 0.24389
AW $15,991 P/A 4.1002
P/G 7.6467
C1 17727.272727
PW1 15990.78 17902.455
PW2 1911.675 4366.23

A1 $3,645 1.07
A2 $3,625 1.1449
A3 $3,592 1.225043
A4 $3,547 1.31079601
A5 $3,494 1.402551731
$17,902
$4,366.23

A small VoIP provider borrowed $2 million for new equipment and repaid the principal of the loan
3 plus $275,000 interest after 1 year. What was the interest rate on the loan? The interest rate on the
loan was
 P $2,000,000
ir $275,000
n 1

i 13.75%

4
A new engineering graduate who started a consulting business borrowed money for 1 year to
furnish the office. The amount of the loan was $32,000, and it had an interest rate of 8% per year.
However, because the new graduate hadn’t built up a credit history, the bank made him buy loan
default insurance for 5% of the loan amount. In addition, the bank charged a loan setup fee of $295.
What was the effective interest rate the engineer paid for the loan?

P $32,000
i 8%
bi' 5%
if 295

in $2,560
ib $1,600
T $4,455

ei 13.92%

5
Raydeck International set aside a lump sum investment 3 years ago in order to
finance a plant expansion now. The money returned 10% per year simple interest.
How much did the company set aside if the investment is now worth $770,500
56

n 3
i 10%
F $770,500

PW $0.300 $1.300
$592,692.31

6 An arc welder with AI software onboard costs $3,990 today, $3750 last year, and $3,220 one year
prior to that. Determine the one-year rate of inflation for each year.

The inflation rate for last year was

 The inflation rate for last year was

The inflation rate for one year prior to last year was

3 $3,990
2 $3,750 $240
2 $3,220 $530

IR 6.40% 6.400%
IR2 16.46% 16.46%

7 RKI Instruments borrowed $4,900,000 from a private equity firm for expansion of its facility for
manufacturing carbon monoxide monitors. The company repaid the loan after 1 year with a single
payment of $5,475,000. What was the interest rate on the loan?

The interest rate on the loan was

P $4,900,000 $575,000
A $5,475,000 11.7347%
n 1

ir 11.73%

8
During a recession, the price of goods and services goes down because of low demand. A company
that makes Ethernet adapters is planning to expand its production facility at a cost of $1,200,000 1
year from now. However, a contractor who needs work has offered to do the job for $810,000
provided the company will do the expansion now instead of 1 year from now. If the interest rate is
9% per year, how much of a discount is the company receiving?

The discount that the company is receiving is

A $1,200,000
G $810,000
n 9%

F $1,100,917
Discount $290,917.431
 9 As a principal in the consulting firm where you have worked for 20 years, you have accumulated
5300 shares of company stock. One year ago, each share of stock was worth $40. The company has
offered to buy back your shares for $260,000. At what interest rate would the firm’s offer be
equivalent to the worth of the stock last year?

The required interest rate is

n 20
F $260,000
Shares $5,300
Psh $40
P $212,000

i 22.642%

10 How many years will it take Rexchem, Inc., to accumulate $725,000 for a chemical feeder, if the
company deposits $50,000 each year, starting one year from now, into an account that earns
interest at 10% per year? (Round up your answer to an integer value.)

Rexchem, Inc., will take

A $50,000 14.5 1.45 2.45

F $725,000 110%
i 10% 0.09531018 n 9.40
n 28.06 0.896088025

11 Find the present worth in year 0 for the cash flows shown. Let i = 13% per year.
The present worth is determined to be $
 I 13%
1 176.99115044 P/F 0.88505
2 39.157334169 P/A 4.42605
3 48.513511359 P/G 11.1466
4 55.198685491
5 59.70359296 177.01
6 62.441408566 221.3025 444.2345
7 63.759096562 222.932 393.1697442
8 63.947176493 570.18
PV 569.71

12
Eckelberger Products, Inc., makes high-speed recorders with high-speed scanning. The small
company has been growing at an average rate of 60% per year for the past 4 years. The CEO asks you
to convert the past growth rate into a monthly rate for its annual report. If the past growth rate is an
effective rate, what is the effective growth rate per month? Solve by equation and spreadsheet
function.
The effective growth rate is

ai 60%
n 4
160%
0.0833333333 48%
1.0399441077
em 3.9944%

13 Assume that Austin Water purchases surface water from the Lower Colorado River Authority at a
cost of $120,000 per month in the months of February through September. Instead of paying
monthly, the utility makes a single payment of $880,000 at the end of the year (i.e., end of
December) for the water it used. The delayed payment essentially represents a subsidy by the
Authority to the water utility. At an interest rate of 3% per year compounded monthly, what is the
amount of the subsidy?

The amount of the subsidy is $

MC $120,000 MONTHS 8
F $880,000 IM 0.25%
I 3%

$48,000,000
1.0201758777
0.0201758777
vsep $968,442

vdec $975,724

Subsidity $95,723.62
14 Metalfab Pump and Filter Inc. estimates that the cost of steel bodies for pressure valves will increase
by $2 every 3 months. If the cost for the first quarter is expected to be $80, what is the present
worth of the costs for a 5-year time period at an interest rate of 1.86% per quarter?
The present worth is $

P $80 2 1+i^n
G $2 4 in
M 3 6 i^2
N 5 0.00465 8
i 1.86% 1.0186 10 up
12 down
1 $78.539 14 P/G
2 $79.033 16
3 $79.482 18 up
4 $79.888 20 down
5 $80.254 22 P/A
6 $80.579 24
7 $80.865 26 $1,326
8 $81.114 28 $295
9 $81.328 30 $1,620.610
10 $81.506 32
11 $81.651 34
12 $81.763 36
13 $81.844 38
14 $81.894 40
15 $81.916 42
16 $81.909 44
17 $81.876
18 $81.816
19 $81.731
20 $81.622
$1,620.610

15 Income from recycling the paper and cardboard generated in an office building has averaged $3300
per month for the past 5 years. What is the income stream’s future worth at an interest rate of 9%
per year, compounded semi-annually?
The income stream’s future worth is

A $3,300.00 $19,800.00
n 5 10 F/A 12.288
i 9% 4.5%
$243,306.55
F/A 12.292

FW $243,381.600
16
You have a very good salary and a smart investment manager. She tells you that in only 6 years you
can accumulate $688,530 from quarterly deposits of $20,000 into an account that has a historical
return of 12% per year compounded quarterly. It seems like a “stiff” commitment, but one worth
trying as you prepare for an early retirement from your current defense contractor engineering job.

Verify the 6-year time commitment if all other estimates are correct.
The formula used to determine the future value is
Ax(F/A,3%,24)
Ax(A/P,3%,24)
Ax(P/A,3%,24)
Ax(A/F,3%,24)

F $688,530.00
G $20,000.00
i 12% 0.06 0.015
n 6

17 If you deposit $1100 per month into an investment account that pays interest at a rate of 8% per
year compounded quarterly, how much will be in your account at the end of 5 years? Assume no
interperiod compounding.
The amount present in your account would be

A $1,100.00 $3,300.00
i 8% 2% 24.297
n 5 20

F/A 24.2974
$80,181.42

18 You just deposited $7,500 in an investment account and will deposit $5000 more four
years from now.
Use tabulated factor values to determine how much will be in the account 12 years
from now if the rate of return is 10% per year?
12 years from now, the account will have

P1 $7,500.00
P2 $5,000.00 F/P 3.1384
n 12 F/A 11.4359
 i 10%
$23,538.00
$57,179.50
F1 $23,538.21 $80,717.50
F2 $10,717.94
$34,256.16 2.14358881 1.14358881
11.4358881

19
Pollution control equipment for a pulverized coal cyclone furnace is expected to cost $190,000 two
years from now and another $120,000 9 years from now. If Monongahela Power wants to set aside
enough money now to cover these costs, how much must be invested at an interest rate of 9% per
year compounded quarterly?

NOTE: This is a multi-part question. Once an answer is submitted, you will be unable
to return to this part.
Solve using factors.
The amount that must be invested by Monongahela Power is

A2 $190,000.00
A9 $120,000.00
i 9% 0.0225

P2 $159,018.29
P9 $53,864.40
$212,882.69

20 Continental Airlines operates in and out of many countries. Country A has a low inflation rate of
3.8% per year, while country B has a high rate of 22% per year. A $1 million fund is maintained in
each country for emergency purchases to repair disabled aircraft. Use a formula to determine the
purchasing power after 2, 4, and 5 years if the funds are not utilized.

Enter your answer in thousands of dollars and not millions.

Country A:
The purchasing power after 2 years will be $
The purchasing power after 4 years will be $
The purchasing power after 5 years will be $

Country B:
The purchasing power after 2 years will be $
The purchasing power after 4 years will be $
The purchasing power after 5 years will be $
 iA 3.80% 2
iB 22% 4
P $1,000,000 5

a $928,122.48
$861,411.34
$829,876.05

b $671,862.40
$451,399.09
$369,999.25
s from now. The chief
s high-yield investment

ling data acquisition

rce transducers. The cost
to increase by $250
osts (years 1–5) at an

AG 1.381

he principal of the loan

The interest rate on the
oney for 1 year to
st rate of 8% per year.
nk made him buy loan
a loan setup fee of $295.

ars ago in order to

ear simple interest.
w worth $770,500

, and $3,220 one year

ion of its facility for
er 1 year with a single

w demand. A company
t a cost of $1,200,000 1
e job for $810,000
w. If the interest rate is
 u have accumulated
$40. The company has
he firm’s offer be

emical feeder, if the

ccount that earns

YEAR0 = 0
YEAR1 = 200
YEAR2 = 50
YEAR3 = 70
YEAR4 = 90
YEAR5 = 110
YEAR6 = 130
YEAR7 = 150
YEAR8 = 170
 1+I 113% 2.658444193

nning. The small

4 years. The CEO asks you
he past growth rate is an
on and spreadsheet

o River Authority at a
Instead of paying
ear (i.e., end of
ts a subsidy by the
d monthly, what is the
ssure valves will increase
what is the present
uarter?

1.445684207
0.372
0.00034596

0.073684207
0.000500149
147.3245389

0.445684207
0.026889726
16.57451634 53.76344086
#VALUE!
#VALUE!
#VALUE!
#VALUE!

ing has averaged $3300

t an interest rate of 9%
 that in only 6 years you
t that has a historical
tment, but one worth
tractor engineering job.

st at a rate of 8% per
f 5 years? Assume no

$10,980.75
$15,980.75
 $34,256.16

d to cost $190,000 two

ower wants to set aside
interest rate of 9% per

low inflation rate of

fund is maintained in
mula to determine the