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Survey of Finance and Engineering Economics Presented by Mohammed Ali Alsendi Nadia Mohammed Daabis Instructor Professor Wajeeh Elali

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Time Value of Money Time value of money refers to the concept that a dollar today is worth more than a dollar tomorrow.

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Case study NATASHA, 30 years old and has Bachelor of science degree in computer science. Working as Tier 2 field service representative for a telephony corporation located in Seattle, Washington. She has $75,000 that recently inherited from her aunt, and invested this money in 10 years treasury bond.

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Terms of Common Inputs Current Salary $38,000/- She don’t expect to lose any income during the Certification or while she earning her MBA. In both cases, she expect her salary differential will also grow at a rate of 3% per year, for as long as she keep working. Keep using the interest rate as discount rate for the remainder of the problem

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CAMPARISME SUMMARY Option 1 "Network Design" Option 2 "MBA" PositionTier 3 Managerial Position Cost$5,000$25,000 / Year Period1 year3 years Salery Increasment $10,000$20,000 Payment DueEnd of 1 yearBegin of each year Risk Above 80% on an exam at end of course Evening program which will take 3 years to complete Summary

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Timeline Option 1 Option 2 t0t0 t1t1 t2t2 t3t3 $38,000$39,140 $50,614.20$52,132.62 $38,000 x 3%($39,140+$10,000) x 3%$50,614.20 x 3% ($5,000) ($25,000) $39,140$40,314.20 $41,523.626 $38,000 x 3%$39,140x 3% t4t4 $53,696.59 $63,369.33 ($41,523.626+$20,000) x 3% $52,132.62x 3%

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Timeline Graph

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Treasury Bond Amount $75,000 Period 10 years Rate 3.52% (1 st June, 2009)* A marketable, fixed-interest government debt security with a maturity of more than 10 years. Treasury bond make interest payment annualy and the income that holders receive is only taxed the federal level.

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t0t0 t1t1 t2t2 t 10 ($75,000) Treasury Bond $9027.19 ….. PVA(ordinary) = PMT 1 – (1+k) -n K $75,000 = x 1 – (1+0.0352) -10 0.0352 PMT = $9027.190 PMT = $9027.190 [ ]

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Certificate PV 4 = (FV 4 +TB) (1+r) -4 = (53,696.6+ 9027.19) (1+0.0352) -4 PV 4 = $54,617.934 NPV = PV – Certificate cost $49,617.934 = 54.617.934– 5000 = $49,617.934 t0t0 t1t1 t2t2 t3t3 $38,000$39,140 $50,614.20$52,132.62 $38,000 x 3%($39,140+$10,000) x 3%$50,614.20 x 3% ($5,000) t4t4 $53,696.60 $52,132.62x 3%

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MBA PV 4 = (FV 4 +TB) (1+r) -4 = (62,123.626+ 9027.19) (1+0.0352) -4 PV 4 = $71,151.686 1 PMT(due) = PMT 1-(1+r) -n (1+r) r = 25,000 1-(1+0.0352) -2 (1+0.352) 0.352 PMT(due) = $49,149.91 [ ] 2 t0t0 t1t1 t2t2 t3t3 $38,000 ($25,000) $39,140$40,314.20 $41,523.626 $38,000 x 3%$39,140x 3% $40,314.20 x 3% $ 74,149.91 PMT(MBA cost) = 25,000 + 49,149.91 = $ 74,149.91 t4t4 $62,123.626 ($41.523.626+$20,000) x 3%

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From 1, 2 NPV = PV 3 – Cost of MBA = 71151.686 - 74,149.91 NPV = $(2,998.223) MBA

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Financial Planning Advice I will suggest Natasha as a Financial Planning to enroll in the Certificate Program based on her desire that she is not expect to lose any income during the certificate. Moreover, its impossible to implement this condition if she choose the MBA program unless she sell a fraction of her future earning from her treasury bond or she could barrow money from other recourses.

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Thank you

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Bond Math FNCE 4070 Financial Markets and Institutions.

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