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Survey of Finance and Engineering Economics

Survey of Finance and Engineering Economics. Presented by Mohammed Ali Alsendi Nadia Mohammed Daabis Instructor Professor Wajeeh Elali. Time Value of Money. Time value of money refers to the concept that a dollar today is worth more than a dollar tomorrow. Case study.

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Survey of Finance and Engineering Economics

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  1. Survey of Finance and Engineering Economics Presented by Mohammed Ali Alsendi Nadia Mohammed Daabis Instructor Professor WajeehElali

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

  3. 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.

  4. 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

  5. Summary CAMPARISME SUMMARY

  6. Timeline $38,000 x 3% $39,140x 3% $39,140 x 3% ($41,523.626+$20,000) x 3% $39,140 $40,314.20 $41,523.626 $63,369.33 $38,000 x 3% ($39,140+$10,000) x 3% $50,614.20 x 3% $52,132.62x 3% $50,614.20 $52,132.62 $53,696.59 $38,000 $39,140 t0 t1 t2 t3 t4 ($5,000) ($25,000) ($25,000) ($25,000) Option 2 Option 1

  7. Timeline Graph

  8. Treasury Bond • 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. Amount $75,000 Period 10 years Rate 3.52% (1st June, 2009)*

  9. Treasury Bond $9027.19 $9027.19 $9027.19 ($75,000) t0 t1 t2 ….. t10 [ ] PVA(ordinary) = PMT 1 – (1+k)-n K $75,000 = x 1 – (1+0.0352)-10 0.0352 PMT = $9027.190 [ ]

  10. Certificate $38,000 x 3% ($39,140+$10,000) x 3% $50,614.20 x 3% $52,132.62x 3% $50,614.20 $52,132.62 $38,000 $39,140 $53,696.60 • PV4 = (FV4+TB) (1+r)-4 = (53,696.6+ 9027.19) (1+0.0352)-4 PV4 = $54,617.934 t0 t1 t2 t3 t4 ($5,000) NPV = PV – Certificate cost = 54.617.934– 5000 = $49,617.934

  11. MBA $38,000 x 3% $39,140x 3% $40,314.20 x 3% ($41.523.626+$20,000) x 3% $38,000 $39,140 $40,314.20 $41,523.626 $62,123.626 t0 t1 t2 t3 t4 • PV4= (FV4+TB) (1+r)-4 = (62,123.626+ 9027.19) (1+0.0352)-4 PV4= $71,151.686 ($25,000) ($25,000) ($25,000) 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 PMT(MBA cost) = 25,000 + 49,149.91 = $ 74,149.91

  12. MBA From 1 , 2 NPV = PV3 – Cost of MBA = 71151.686 - 74,149.91 NPV = $(2,998.223)

  13. 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.

  14. Thank you

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