Lab 2 Time value,NPV etc Shakshi Maheshwari

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School

Seneca College *

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&08

Subject

Marketing

Date

Apr 3, 2024

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docx

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8

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SENECA POLYTECHNIC COLLEGE MARKETING MANAGEMENT MODULE NAME FINANCIAL ASPECTS OF MARKETING MKM 704- ZTT SEMESTER-1 FALL 2023 SUBMITTED TO: - PROF. CHANDRA PERSAUD SUBMITTED BY: - SHAKSHI MAHESHWARI
Question 1: - If you invest $12,000 today, how much will you have a. In 6 years at 7 percent b. In 15 years at 12 percent To calculate the future value of an investment, we will use the following formula: Future Value = Present Value * (1 + Annual Interest Rate)^Number of Years which in short can be written as FV = PV( 1 + i) n Given in the question: Investment – 12,000 In 6 years at 7% In 15 years at 12% a. In 6 years at 7 percent: FV = PV(1 + i) n Future Value = 12000 * (1 + 0.07)^6 Future Value = 12000 * (1.5007) Future Value = 18008.4 So, if we invest $12,000 today at an annual interest rate of 7 percent, we will have $18,008.4 in 6 years. b. In 15 years at 12 percent: FV = PV(1 + i) n Future Value = 12000 * (1 + 0.12)^15 Future Value = 12000 * (5.4735) Future Value = 65682 If we invest $12,000 today at an annual interest rate of 12 percent, we will have $65,682 in 15 years.
Question 2: -Delia has a choice between $103,000 in 10 years or $35,000 today. a. Calculate the present value of $103,000, If long term rates are 11 percent? b. What should be her choice? $103,000 in 10 years or $35,000 today. To figure out which option Delia should choose, we will find the present value of $103,000 if long-term rates are 11% and then contrast it to the $35,000 that she can have today. a. Present Value = Future Value / (1 + Annual Interest Rate)^Number of Years Present Value = 103,000 / (1 + 0.11)^10 Present Value = 103,000 / (1.11)^10 Present Value = 36,275 So, the present value of $103,000 is $36,275 received in 10 years at 11% rate. b. Comparing both the options we can see that: Option 1: Delia can receive $103,000 in 10 years, which has a present value of 36,275. Option 2: Delia can have $35,000 today. Hence, it's clear that Option 1 is the better choice if Delia wants to maximize the value of her money over period of time. Hence, she should choose to receive $103,000 in 10 years rather than taking $35,000 today.
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