What is home equity?
2 answers:
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Answer:
Rate of return 9.1864%
Explanation:
Scenario description:
using the new alloy, will extend the life of a telecommunication satellite thus, more years for the porject life.
We need to calcualte the rate at which the extra revenues in years 11 through 15 equalize the extra cost of 870,000 at F0
each extra revenue will be considered a lump sum, we will add them and check the present value.
Maturity 450,000 500,000 550,000 600,000 650,000
time 11.00 12.00 13.00 14.00 15.00
rate : ??
As this is a complex equation the human way to solve this is with trial an error.
Also, we could solve this with a financial calcualtor or excel.
We are going to use the latter.
you will do as follow:
from A1 to A5 write the maturity values
from B1 to B5 write the time
on c1 write 0.1 this will be the first rate we will build the formulas and then, excel will solve for the answer:
on D1 you will write:
=A1/power(1+$C$1,B1)
Thisformula calculates the presnet value of the additional revenues
then drag this up to D5
on D6 =sum(D1:D5) this add them
Then select d6 goo to goal seek and define it as 870,000 changing the cell C1
This will give you: 0.091863796 = 9.1864% this is the rate ofr eturn for impelenting the alloy