Using a While Loop for Input and Calculating Present Value
Learning Outcomes
- Using a while loop for input
- Using a terminator value to end input
- Calculation of Present Value of a Future Amount and Series
Background
First, you should read this simple article on the concept of Present Value – https://www.investopedia.com/walkthrough/corporate-finance/3/time-value-money/present-value-discounting.aspx
and the concept of present value of a time series (also called annuity)
https://www.investopedia.com/retirement/calculating-present-and-future-value-of-annuities/
This will be useful to you in understanding what you will need to program based on the problem given below.
Assignment
You are going to need to make a purchase decision on a major piece of equipment. To do this you will need to look at a number of scenarios based on revenue generation and future sales value of the equipment. The equipment has a 10-year life span and a resell value at 10 years as specified.
Given possible interest rates of 5% determine the best choice of equipment purchases by calculating the Present Value of the equipment and the present value of the revenue generation based on the equipment. The company has the following offerings – they will repurchase the equipment at the amount specified by taking a share of annual revenue generated. The guaranteed revenue generated for you is the amount below (they take any extra revenue).
If the original purchase price is $10,000 you must determine if it is a good investment. You must also calculate risk if interest rates increase or decrease. This should be included as part of your recommendation in your report. (Remember you will be submitting an engineering report).
| Resale Amount at 10 Years | Annual Revenue Generated |
| 10,000 | 500 |
| 9,000 | 600 |
| 5,000 | 1,000 |
| 3,000 | 1200 |
| 0 | 1500 |
Write a program where you can enter the interest rate (once), then use the resale value and annual revenue as shown and have it calculate PV of the future resale and the PV of the revenue stream and the total. The program should output a table of all the results.
I recommend first testing with a single Resale Amount and Annual Revenue
For error checking – the Total Present Value of Scenario 1 at 5 % interest and assuming revenue starts at year 1 and continues through year 10 is $10,000 (the same as your initial investment – in other words, it is a perfect break-even scenario)
The program will be used to generate output for your engineering report. The report should focus on the solution, but also include the methodology (your programming) that is used to generate the solution. Don’t forget to also include the risk associated with changes in interest rates that you should be able to quantify with the program you wrote.
Information
A sample video to support this assignment is at https://youtu.be/9gc7zhtd6eY
Time Value of Money – It is important that as engineers you understand the time value of money. Simply put – if inflation is 10% then $1.00 today is only worth $0.90 one year from now. More important, engineering projects often take multiple years, so planning on financing these projects is not as simple as a fixed price/cost. This example demonstrates this concept and asks you to make decisions based on this concept.
Learning Python – The Lectures Page has lots of video resources about what you need to know for this (and other problems) I am always willing to create video segments to help you learn how to use Python, but programming is best learned by doing it – programming. If you get stuck, you cannot understand the logic of some algorithms, or you run into a bug you cannot solve – that is why we have a discussion board. Learning to ask good questions is truly an important skill, especially technical questions.
The Lectures Page has more video and information on the programming for this and all the other assignments. You should look at the lectures available.
Report
Your report should include a (1) solid problem statement, (2) methodology, (3) a table of results showing the PV of the resale and the income from the scenarios, (4) the risk associated with interest fluctuations, (5) code in the appendix.