Question

A)   A person borrows 10.000 $ at 8% interest rate compounded annually and wishes to pay the loan back over a five-
year period with annual payments. However, the second payment is to be 500 $ greater than the first payment, the third
payment must be 1.000 $ greater than the second payment; the forth payment must be 1.500 $ greater than the third
payment; and the fifth payment must be 2.000 $ greater than the fourth payment. Determine the size of the first payment
and use Annual Equivalent approach in your solution.
B)   X $ is borrowed from a bank. It is agreed that payments of 2.000 $, 3.000 $, 4.000 $, and 5.000 $ made at the
end of the 4th, 5th, 6th, and 7th years respectively will satisfy the borrowed money if an interest rate of 10 % compounded
annually is the appropriate interest rate. By use of the uniform gradient series factor and any other relevant interest factor(s),
determine the amount of X $
C) A building will be constructed in 5 years. The yearly expenditures in these five years will be 400.000 $/yr. The
building’s life is 40 years after the end of the construction. The yearly net rental income during these 40 years will be 200.000
$/yr. Assuming an interest rate of 10 % in the first 20 years (including 5 years of construction time and 15 years of the
building’s life) and an interest rate of 12 % in the remaining 25 years of the building’s life, calculate the value of the building
at the end of its life.
D) A company wants to start an excavation business which will continue for 11 years. They plan to buy an excavator
which will cost 620.000 $ with a useful life of 5 years and a salvage value of 50.000 $. A major repair of 60.000 $ is estimated for the end of the 3rd year. They also expect to get an income of 180.000 $ per year. At the end of the 5-year period, they
are planning to buy a new excavator for 800.000 $ with a useful life of 6 years and a salvage value of 75.000 $. The expected
income from this excavator is 200.000 $ per year during its useful life. Maintenance and repair cost for the second excavator
is expected to be 80.000 $ in the 3rd year of its useful life. Interest rate for the first 5 years is 10% and for the next 6 years
interest rate is expected to be 12%. Decide whether this is a good investment or not by calculating the present value of all
expected expenditures and incomes.
E) Solve any three questions above by using the financial functions in Excel (You should write the commands and values )

Answer 1

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