Chapter 3
Combining Factors and Spreadsheet Functions
3.1 P = 12,000 + 12,000(P/A,10%,9)
= 12,000 + 12,000(5.7590)
= $81,108
(b) Enter cash flows in, say, column A, and use the function = NPV(12%,A2:A10)*1000 to
display $-71,308.
3.4 P = 22,000(P/A,8%,8)(P/F,8%,2)
= 22,000(5.7466)(0.8573)
= $108,384
P = 560,000(P/A,6%,20)
= 560,000(11.4699)
= $6,423,144
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3.8 P = (20 – 8) + (20 – 8)(P/A,10%,3) + (30 – 12)(P/A,10%,5)(P/F,10%,3)
+ (30 - 25)(P/F,10%,9)
= 12 + 12(2.4869) + 18(3.7908)(0.7513) + 5(0.4241)
= $95,228
(b) Enter cash flows in, say, column B, rows 2 through 11, and use the embedded function
= - PMT(10%,9,NPV(10%,B3:B11) + B2) to display $5731.
(b) Enter cash flows in B3 through B9 with a number like 1 in year 4. Now, set up
PMT function such as = -PMT(10%,7,NPV(10%,B3:B9) + B2). Use Goal Seek to
change year 4 such that PMT function displays 300. Solution is x = $619.97.
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3.15 Amount owed after first payment = 10,000,000(F/P,9%,1) - 2,000,000
= 10,000,000(1.0900) - 2,000,000
= $8,900,000
P0 = 20(P/A,12%,4) + 60(P/A,12%,5)(P/F,12%4)
= 20(3.0373) + 60(3.6048)(0.6355)
= $198.197 ($198,197)
A = 198.197(A/P,12%,9)
= 198.197(0.18768)
= $37.197 ($39,197 per year)
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3.23 10A0 = A0 + A0(F/A,7%,n)
9A0 = A0(F/A,7%,n)
(F/A,7%,n) = 9.0000
P2 = 540,000(P/A,10%,8) + 6000(P/G,10%,8)
= 540,000(5.3349) + 6000(16.0287)
= $2,977,018
F = 2,977,018(F/P,10%,8)
= 2,977,018(2.1436)
= $6,381,536
Therefore, cost is not justified by the savings. In fact, it is not even close to being
justified.
3.26 Move all cash flows to year 8 and set equal to $500. Then solve for x.
3.28 A = 50,000(A/F,15%,4)
= 50,000(0.20027)
= $10,015
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3.29 Find F in year 5, subtract future worth of $42,000, and then use A/F factor.
F = 74,000(F/A,10%,5) – 42,000(F/P,10%,4)
= 74,000(6.1051) – 42,000(1.4641)
= $390,285
A = 390,285(A/F,10%,4)
= 390,285(0.21547)
= $84,095 per year
3.30 A = 40,000(F/A,12%,3)(A/P,12%,5)
= 40,000(3.3744)(0.27741)
= $37,444
(b) Enter all cash flows in cells B2 through B18 and use the embeded function
= -FV(12%,9,,NPV(12%,B3:B18) + B2) to display $-105,768.
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3.35 P = -50(P/F,10%,1) - 50(P/A,10%,7) )(P/F,10%,1) - 20(P/G,10%,7)(P/F,10%,1)
- (170-110)(P/F,10%,5)
A = 1,147,883(A/P,10%,20)
= 1,147,883(0.11746)
= $134,830
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3.40 A = 5000(A/P,10%,9) + 5500 + 500(A/G,10%,9)
= 5000(0.17364) + 5500 + 500(3.3724)
= $8054
3.41 (a) In $1 million units, find P0 then use F/P factor for 10 years.
P0 = 3.4(P/A,10%,2) + Pg(P/F,10%,2)
P0 = 3.4(P/A,10%,2) + 19.8678(P/F,10%,2)
= 3.4(1.7355) + 19.8678(0.8264)
= $22.3194
F10 = P0(F/P,10%,10)
= 22.3194(2.5937)
= $57.8899 ($57,889,900)
(b) Enter 3.4 million for years 1, 2 and 3, then multiply each year by 1.03 through year 10.
If the values for years 0-10 are in cells B2:B12, use the function
= -FV(10%,10,,NPV(10%,B3:B12)).
F = 630,630(F/P,10%,11)
= 630,630(2.8531)
= $1,799,250
P0 = 7200(P/A,8%,3) + 37,322(P/F,8%,3)
= 7200(2.5771) + 37,322(0.7938)
= $48,181
3.44 Two ways to approach solution: Find Pg in year -1 and the move it forward to year 0; or
handle initial $3 million separately and start gradient in year 1. Using the former method
and $1 million units,
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Pg,-1 = 3{1 – [(1 + 0.12)/(1 + 0.15)]11}/(0.15 – 0.12)
= 3{1 – 0.74769}/0.03
= $25.2309
P0 = 25.2309 (F/P,15%,1)
= 25.2309 (1.15)
= $29.0156 ($29,015,600)
P0 = 818,182(F/P,10%,1)
= 818,182(1.1000)
= $900,000
A = 9,312,565(A/P,12%,9)
= 9,312,565(0.18768)
= $1,747,782 per year
P0 = 14,000(2.1743) + 47,525(0.6086)
= $59,364
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F = P0(F/P,18%,10)
= 59,364(5.2338)
= $310,700
(b) Enter $14,000 for years 1-4 and decrease entries by 5% through year 10 in B3:B12.
Use the embedded function = -FV(18%,10,,NPV(18%,B3:B12)) to display the future
worth of $310,708.
F = 1803.99(F/P,10%,7)
= 1803.99(1.9487)
= $3515
P0 = 38,000(P/A,10%,2) + Pg (P/F,10%,2)
P0 = 38,000(1.7355) + 110,123(0.8264)
= $156,955
A = 156,955(A/P,10%,7)
= 156,955(0.20541)
= $32,240
3.52 Find Pg in year -1 and then move to year 10 with F/P factor.
F = 387,310(F/P,12%,11)
= 387,310(3.4785)
= $1,347,259
Answer is (c)
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3.55 Answer is (a)
P3 = 61,446(P/F,10%,11)
= 61,446(0.3505)
= $21,537
Answer is (d)
A = 31,510(A/F,8%,4)
= 31,510(0.22192)
= $6993 per year
Answer is (a)
Answer is (b)
Answer is (c)
Answer is (d)
Answer is (b)
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Solution to Case Study, Chapter 3
There are not always definitive answers to case studies. The following are examples only.
Cash flow________
Year Land Parks
0 $4,000,000
1 3,000,000
2 2,250,000
3 1,678,000
4 1,265.625 $550,000
5 949,219 650,000
6 750,000
P = 4 + 3(P/F,7%,1) + … + 0.750(P/F,7%,6)
= $13.1716 ($13,171,600)
A = (13.1716 – 3.0)(A/P,7%,2)
= (10.1716)(0.55309)
2. Find remaining project fund needs in year 3, then find the A for the next 3 years
F3 = (13.1716 – 3.0)(F/P,7%,3)
= $12.46019
A = 12.46019(A/P,7%,3)
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