Healthcare Finance Chapter#9 Answers Essay

| Calculate the present value of the payments, if you can borrow or lend funds at a 7% interest rate. Assume the product sells for $100. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

9. What is the present value of an 8-year annuity that makes quarterly payments of $73 if

It is much easier to calculate the FV of annuity when the payments are made at semiannual compounding, the periodic rate is simply the nominal rate divided by two (number of compounding periods per year). Thus, the result should be:

a. I = 4%, PV = $74,000, N = 20, FV = $162,143 b. FV = $2 million, N = 25, I = 8%, PMT = $27,357 c. PMT = $160,000, N = 20, I = 4%, PV = $2,174,452 d. FV = $3.5 million, N = 30, I = 7%, PMT = $37,052

Compounding monthly means that there are twelve interest payments per year. So, n = 12(5) = 60 and i = 0.08/12 = [pic]

Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods.

Which of the following is the actual rate of interest paid or earned over a year's time?

Break-even analysis helps to plan and control business by showing break-even point, net profit and net loss areas. As it is mentioned in the graph below, on the break-even point cost is equal to revenue which means there is neither loss nor profit at the intersection of sales line and cost line (Frongello).

Make: v = 500 000 F = 20 000 Buy: v = 6 700 000/10 = 670 000 F = 7 500

If we were to use the example above with a 5% interest rate, and a present value of

The annuity present value would be PV=C{1-[1/(1/1+r)2]}/r. To speed things up as taught in our lesson, one can turn to page 364 to find the Annuity Present Value factor. Since the period is over 10 years and we are plugging in 10% for both contracts, the Annuity PV Factor would equal 6.1446. If we wanted to stick with the initial formula for the first contract, we would say C=10,000,000. Therefore, C x {1-[1/(1.1)10]}/.1. This gets messy, so we should go back to the shortcut as described in our lecture. The Annuity PV Factor is 6.1446. the Annuity PV=$10 million times 6.1446. This would result in 61.446 million dollars. The second contract stipulates that 100 million will be paid in 10 installments, but the installments will increase 5% per year. In doing math we find should let x be the first installment in year one. Therefore, x(1+1.051+1.052+1.053+1.054+1.055+1.056+1.057+1.058+1.059)=100 million. In plugging in the formula, you would divide 100 by the parenthesis to separate x. X would result in

PV = 25,000 I = 0.25 N = 36 FV = 0 PMT =? = $727.03

In this case, NPVF is Tax Subsidy. We discount the interests of the 5 years to 2007 using cost of debt (=5.50%), and then

NPV = - 650 + 1773 + 622 + 217 + 1240 + 2122 = 0

Themachine costs $35,000 and is expected to last for 15 years. Rainbow has determined that the cost ofcapital for such an investment is 12%.[A] Compute the payback, net present value (NPV), and internal rate of return (IRR) for this machine.Should Rainbow purchase it? Assume that all cash flows (except the initial purchase) occur at the endof the year, and do not consider taxes. Rainbow Products is considering the purchase of a paint-mixing machine to reduce labor costs.The savings are expected to result in additional cash flows to Rainbow of $5,000 per year. Themachine costs $35,000 and is expected to last for 15 years. Rainbow has determined that the cost ofcapital for such an investment is 12%.[A] Compute the payback, net present value (NPV), and internal rate of return (IRR) for this machine.Should Rainbow purchase it? Assume that all cash flows (except the initial purchase) occur at the endof the year, and do not consider taxes. Rainbow Products is considering the purchase of a paint-mixing machine to reduce labor costs.The savings are expected to result in additional cash flows to Rainbow of $5,000 per year. Themachine costs $35,000 and is expected to last for 15 years. Rainbow has determined that the cost ofcapital for such an investment is 12%.[A] Compute the payback, net present value (NPV), and internal rate of return (IRR) for this machine.Should Rainbow purchase it? Assume that all cash flows (except the initial