Question

I need help with question 28-31.

BI U - - - A.E E Merge & Center - $ -% % -28 Conditional Fo Formatting Font Alignment Number Sty X ✓ fx с KILMIN D ME 7382 Homework Assignment #2 28 Consider an asset which is a "black box". You do not know what is in the box Yearly the box opens and throws out $ 250,000 in cash (assume no taxes are required to be paid on this amount) What is the price you would pay for this asset if you required a 10% return on your investment? (List any assumption you use.) 29 If a house costs you $250,000 today, what is the value of this house in 5 years if the rate of inflation is 4%? (Assume the inflation rate is applied to the house value and compounded each year) +(1+i) n = factor = Fv of home in after 5th year 30 What is the value of a $35,000 forklift at the end of year 4 if the true value of the equipment declines evenly over a 7 year basis? (market) Value decline per year Value after 4th year year basis 31 What is the book value of a $35,000 forklift in year 4 if the depreciation (accounting) value of the equipment declines evenly over a (Book Value depreciation amount per year) Book Value at end of 4th yr 32 Assume your $200,000 home appreciates in value at a rate of 5% per year. Assume you take out an 80% mortgage (loan to original value) at 6% interest rate for 30 years. Therefore, you provide 20% or $40,000 equity in the home at the outset of the mortgage What is the amount of equity (the then current value of home (current market value) less mortgage outstanding) at the end of the 60th payment? 33 Step 1: Value of home after 5th yr (using annual rate for depreciation) Value of home after 5th year Sten 2 Balance of Mottaage after 60th Payment Balance Sheet Income Statement Sources Uses Puzzle NPV Applied Valuation

Answer 1

28. Block box throws out yoordy $ 250,000 in cash ue, return on investment. Rate of return on investment I requered, 10% The price I would pay for this asset (black box') es, year return from asset Return on investment reate $ 250,000 10% = $2,500,000 Any 999 Cost of house on today - $250,000 Rate of Enflation - 4%. Valle of house after 5 years, fyp (1 + i)" where, FV Value of house after 5 years P cast of house on today ise, $250,000 ê – Rate of inflation une, 4% = 0.04 a number of years il, 5 years How, value of house a 250,000 (1+0.04) - $304, 163.32 Any

30. value of forklift at the begenning of Ist year is $ 35.000 The true value of the equipment declines evenly over a 7 year basis. $ 35,000 Market value decline por year a 7 years 2 $5000 Book value of forklift at the beginning $35.000 ket value decline en 4 years $20,000 C$ 5000N 4 ) Valur after 4th year Mlan $15,000 Ang

31. Book value of forklift - $35.000 Declines evenly over a 5 year basis So, Decline overy year by, $ 35.000 5 years a $7000 Book camount per year value depreciation a $ 7.000 Book the value of forklift beginning of 1st at year $ 35,000 $ 28.000 Less: Depreciation for 4 yeares ( $ 7000 x 4) Book value of forklift the end of 4th year at $7.000 ANS