Chapter 9 Problem Set Download this excel file in the file attached

1. Epitome Healthcare has just borrowed $1,000,000 on a five-year, annual payment term loan at a 15 percent rate. The first payment is due one year from now.

Construct the amortization schedule for this loan.

A 1 2 3 4 5 6 7 8 B C D E HEALTHCARE FINANCIAL MANAGEMENT F H I Chapter 9 -- Time Value Analysis PROBLEM 1 Find the following values for a lump sum assuming annual, semiannual, and quarterly compounding: ANSWER Annual Semiannual Compounding Compounding 9 10 11 a. The future value of $500 invested at 8 percent for one year b. The future value of $500 invested at 8 percent for five years 12 c. The present value of $500 to be received in one year when the opportunity cost rate is 8 percent. 13 d. The present value of $500 to be received in five year when the opportunity cost rate is 8 percent. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 G A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 B C D E HEALTHCARE FINANCIAL MANAGEMENT F G H Chapter 9 -- Time Value Analysis PROBLEM 2 What is the effective annual rate (EAR) if the stated rate is 8 percent and compounding occurs: ANSWER a. Semiannually b. Quarterly I A 1 2 3 4 5 6 B C D E HEALTHCARE FINANCIAL MANAGEMENT F G H I Chapter 9 -- Time Value Analysis PROBLEM 3 Find the following values assuming a regular, or ordinary, annuity and then repeat assuming the annuities are annuities due: A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 B C D E F HEALTHCARE FINANCIAL MANAGEMENT G H I Chapter 9 -- Time Value Analysis PROBLEM 4 Consider the following uneven cash flow stream: Year 0 1 2 3 4 5 Cash Flow $0 $250 $400 $500 $600 $600 a. What is the present (Year 0) value of the cash flow stream if the opportunity cost rate is 10 percent? b. Add an outflow (or cost) of $1,000 at Year 0. What is the present value (or net present value) of the stream? 19 c. Time value analysis involves either discounting or compounding cash flows. Many healthcare financial management decisions---such as bond refunding, capital investment, and lease versus buy---involve discounting projected future cash flows. What factors must executives consider when choosing a discount rate to apply to forecasted cash flows. 20 ANSWER: 21 22 23 24 25 26 27 28 29 30 31 32 33 A 1 2 3 4 5 6 7 B C D E F HEALTHCARE FINANCIAL MANAGEMENT G H Chapter 9 -- Time Value Analysis PROBLEM 5 (a) What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7 percent? I A B C D E HEALTHCARE FINANCIAL MANAGEMENT F G H 1 2 3 4 5 PROBLEM 6 6 Epitome Healthcare has just borrowed $1,000,000 on a five-year, annual payment term loan at a 15 percent rate. The first payment is due one year from now. Chapter 9 -- Time Value Analysis