Solving Present Value and Future Value Problems

You are the CFO (Chief Financial Officer) of ABC Golf Equipment Corporation, a small company that sells golf equipment. Mr. Hillbrandt, the new CEO (Chief Executive Officer) has a marketing background and is trying to learn more about the financial side of running a business. He wants your help and asks for an introduction to the concept of time value of money.

The value of a typical corporate bond is the present value of an annuity plus the present value of a lump sum. Thus, if an individual does not understand how to calculate the present value of a lump sum or the present value of an annuity, it is difficult to determine the value of a typical corporate bond. Thus, in this case assignment, you will work through a variety of time value of money problems to illustrate the idea to the CEO.

The following websites include a number of formulae and financial calculators, including Present Value, Future Value, and Annuity:

Financial calculators. (2015). Calculator Soup. Retrieved from http://www.calculatorsoup.com/calculators/financial/

Carther, S. (2015). Calculating the present and future value of annuities. Investopedia. Retrieved from http://www.investopedia.com/articles/03/101503.asp

Required:

Compute and show your work for the following scenarios:

Calculate the present value of the following lump sums:

$100,000 to be received five years from now with a 5% annual interest rate

$200,000 to be received 10 years from now with a 10% annual interest rate

Calculate the future value of the following lump sums:

$100,000 if invested for five years at a 5% annual interest rate

$200,000 if invested for 10 years at a 10% annual interest rate

Calculate the present value of these ordinary annuities:

$100,000 to be received each year for five years with a 5% annual interest rate

$200,000 to be received each year for 10 years with a 10% annual interest rate

Calculate the future value of these ordinary annuities:

$100,000 if invested each year for five years at a 5% annual interest rate

$200,000 if invested each year for 10 years at a 10% annual interest rate

Calculate the present value of these perpetuities:

$100,000 to be received each year forever with a 5% annual interest rate

$200,000 to be received each year forever with a 10% annual interest rate

Computations (use Excel).

Show the computations as required above.

Summarize the results in an easy to read table at the top of the spreadsheet or on a clearly labeled separate tab.

Memo (use Word).

Interpret the results from the computations and explain how the information is useful. Write a four or five paragraph memo to the CEO. Start with an introduction and end with a conclusion or recommendation. Each of the four or five paragraphs should have a heading.

Short Essay (use Word).

Do research and write a short essay to comment on the use of bonds by public corporations. The emphasis of the essay could be either

A discussion of different types of bonds; or

The use of bonds in different industries.

Start with an introduction and end with a summary or conclusion. Use headings. DonAc€?ct forget to reference your sources. Maximum length of two pages.