Fundamentals of Corporate Finance Spreadsheet Templates MAIN MENU -- Chapter 5 Instructions Challenge Problem 77 Challenge Problem 79 Challenge Problem 80

Copyright 2012 McGraw-Hill/Irwin

Copyright 2006 McGraw-Hill/Irwin

Copyright 2006 McGraw-Hill/Irwin

Fundamentals of Corporate Finance

Instructions
Navigating the Workbook Entering your information Entering data Printing Navigating the Workbook Each chapter of the spreadsheets to accompany Fundamentals of Corporate Finance contains links to help you navigate the workbook. These hyperlinks help you move around the workbook quickly. The Main Menu contains links to each problem from the chapter that contains the Excel icon. From the Main Menu, click on the question you wish to complete. You can always return to the main menu by clicking on the link located in the upper right corner of each worksheet. You can move quickly around an Excel workbook by selecting the worksheet tab at the bottom of the screen. Each worksheet in an Excel workbook will have its own tab. In the spreadsheets to accompany Fundamentals of Corporate Finance, you will see a separate tab for each problem, along with the Main Menu, Instructions and Help Topics worksheets. Another way to move quickly around an Excel workbook is by using the following keyboard shortcuts: CTRL+PAGE DOWN: Moves you to the next sheet in the workbook. CTRL+PAGE UP: Moves you to the previous sheet in the workbook.

Main Menu

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Entering your information For each question, you will see the following lists and boxes:
Student Name: Course Name: Student ID: Course Number:

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Enter your information in these cells before submitting your work. Entering data To enter numbers or text for these questions, click the cell you want, type the data and press ENTER or TAB. Press ENTER to move down the column or TAB to move across the row. For cells or columns where you want to enter text, select Format, and then Cells from Excels main menu at the top of your screen. Select the Number tab and then Text from the category list. Printing To print your work, select "File," and then "Print Preview" from Excels main menu at the top of your screen. The print area for each question has been set, but be sure to review the look of your print job. If you need to make any changes, select Setup when you are previewing the document. Top Top

Copyright 2009 McGraw-Hill/Irwin

Copyright 2009 McGraw-Hill/Irwin

Chapter 5 Challenge Problem 77: Changing Interest Rates

Student Name: Course Name: Student ID: Course Number: Select the red highlighted items below for tips and suggestions to complete this problem.

Year 1 Interest Rate Year 2 Interest Rate

8% 10%

Future Value in Future Value in 1 year 2 years FORMULA FORMULA

Present Value FORMULA

Present Value FORMULA

Copyright 2009 McGraw-Hill/Irwin

Chapter 5 Challenge Problem 79: Real versus Nominal Cash Flows

Student Name: Course Name: Student ID: Course Number: First use Excel's PV function to find the present value of each lifetime expenditure. For help with Excel's PV function click here

Interest Rate= Expense General Living Apartment Rent Home Purchase Automobile Amount $50,000 16,000 250,000 30,000 30,000 30,000 30,000 30,000 30,000 College Education 150,000 College Education 150,000 Retirement Portfolio FUNCTION Total Present Value = Years 50 8 9 0 10 20 30 40 50 25 30 50 Present Value (PV) FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION

Next use Excel's PMT function to find the average salary that supports this value.

Years

Interest Rate

Salary FUNCTION

For help with Excel's PMT function click here

Repeat part a use the inflation adjusted interest rate.

Interest Rate= Expense General Living Apartment Rent Home Purchase Automobile Amount $50,000 16,000 250,000 30,000 30,000 30,000 30,000 30,000 30,000 College Education 150,000 College Education 150,000 Retirement Portfolio FUNCTION Total Present Value = Years Interest Rate Years 50 8 9 0 10 20 30 40 50 25 30 50 Present Value (PV) FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION FUNCTION Salary FUNCTION

Copyright 2009 McGraw-Hill/Irwin

Chapter 5 Challenge Problem 80: Amortizing Loans and Inflation

Student Name: Course Name: Student ID: Course Number:

a. What is your annual payment on the loan?

Use Excel's PMT function to answer this question: For help with Excel's PMT function click here

Loan Amount (PV) Periods (Yrs)

Int. Rate

Payment FUNCTION

b. Construct a mortgage amortization table. Rate = Year-End Beginning-of-Year Interest Due Year-End Year Balance on Balance Payment 1 100,000.00 FORMULA FORMULA 2 FORMULA 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Amortization of End-of-Year Loan Balance FORMULA FORMULA

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19 20

c. What fraction of your initial loan payment is interest? What fraction is amortization? What about the last loan payment? What fraction of the loan has been paid off after 10 years (halfway through the life of the loan)? Interest Payments as % of Initial Loan = Amortization as % of Initial Loan = Interest in last payment as % of Initial Loan = Amortization in last payment as % of Initial Loan = Fraction of loan paid after 10 years = FORMULA

d. If the inflation rate is 2%, what is the real value of the first (year-end) payment? The last? Real value of first payment = Real value of last payment = FORMULA FORMULA

e. Now assume the inflation rate is 8% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? Recompute the amortization table. What is the real value of the first (year-end) payment in this high-inflation scenario? The real value of the last payment? New nominal interest rate = Real value of first payment = Real value of last payment =

FORMULA FORMULA

f. Comparing your answers to (d) and (e), can you see why high inflation rates might hurt the real estate market? ANSWER

Copyright 2009 McGraw-Hill/Irwin