Question

Shorter Problems1. You borrow $20,000 to finance the purchase of a new car. The loan is for 6% interestannual, and the loan is paid monthly over a 10 year period. What is the monthly loanpayment that you have to make? 2. You wish to make a down payment on a house at the end of five years. At 6% interestannual, what amount must you place in the bank each month to accumulate the $50,000?3. A nuclear waste storage facility will reduce health risks in perpetuity, valued in theamount of $1,000,000 per year. The annual operating costs of the facility are $200,000 inperpetuity. The discount rate is 8%. Question: how high could the initial investment costbe for this investment to have an NPV of at least zero?

          Shorter Problems1.
 You borrow $20,000 to finance the purchase of a new car. The loan is for 6% interestannual, and the loan is paid monthly over a 10 year period. What is the monthly loanpayment that you have to make?
2. You wish to make a down payment on a house at the end of five years. At 6% interestannual, what amount must you place in the bank each month to accumulate the $50,000?3. A nuclear waste storage facility will reduce health risks in perpetuity, valued in theamount of $1,000,000 per year. The annual operating costs of the facility are $200,000 inperpetuity. The discount rate is 8%.
 Question: how high could the initial investment costbe for this investment to have an NPV of at least zero?

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Added by Milagros D.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Solved by Expert James Kiss

02/01/2025

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Problem 1: Monthly Loan Payment Calculation ** Show more…

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Shorter Problems1. You borrow $20,000 to finance the purchase of a new car. The loan is for 6% interestannual, and the loan is paid monthly over a 10 year period. What is the monthly loanpayment that you have to make? 2. You wish to make a down payment on a house at the end of five years. At 6% interestannual, what amount must you place in the bank each month to accumulate the $50,000?3. A nuclear waste storage facility will reduce health risks in perpetuity, valued in theamount of $1,000,000 per year. The annual operating costs of the facility are $200,000 inperpetuity. The discount rate is 8%. Question: how high could the initial investment costbe for this investment to have an NPV of at least zero?

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Transcript

00:01 You have $10 ,000 and can deposit either today or 10 years from today.

00:05 And to determine how much better off you'll be after 40 years, if you deposit it today, we'll compare the future value of each option.

00:11 So the first is deposited today.

00:14 The future value is equal to the present value times 1 plus the interest rate to the number of years.

00:21 So the future value, if you deposit today, the 10 ,000 is the initial or present value.

00:29 The interest rate is 9%.

00:31 So that's 0 .09 as a decimal.

00:35 And you'll have it for 40 years.

00:40 And so that is going to become $314 ,094 .20.

00:52 If you wait 10 years later, then you have 1 plus .09 for 30 years.

01:04 And that is 132 ,67678.

01:12 And so to find the difference, let's just subtract.

01:29 That would be 181 ,417 and 42.

01:45 The person invests $10 ,000 for number two at a 6 % annual return for 18 years.

01:51 Okay.

01:54 So the future value would be deposit, the present value of 10, a 6 % rate for 18 years.

02:05 10 ,000 times 1 .06 to the 18th is about $28 ,543 .39.

02:16 Cents.

02:21 Number three, you're depositing $100 per month at a monthly return of 0 .85 % for 18 years.

02:30 Okay, so now in this case, we've got a monthly deposit of 100.

02:36 The monthly interest rate of 0 .85 divided by 12 would be, so this formula would be p...

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