| Course | FIN-3140 Small Business Finance |
|---|---|
| Module | Module 5 |
| Paper type | Written assignment 5: time value of money |
| Length | About 584 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | B.S.B.A. in Finance |
| Updated | October 2026 |
Free sample paper for FIN 3140 Module 5
Payments, Prepayments and a Pension: Time Value of Money Problems at Cape Point Whale Watch
Student Name
B.S.B.A. in Finance, Thomas Edison State University
FIN-3140: Small Business Finance
Mentor Name
Month Day, Year
Payments, Prepayments and a Pension: Time Value of Money Problems at Cape Point Whale Watch
Problem 1: The Loan Payment
The owner is considering a used 90-passenger vessel for $640,000, financed with a 20 percent down payment and a $512,000 loan at 7.5 percent for ten years, paid monthly. The payment is the amount whose present value, over 120 months at 0.625 percent a month, equals the loan: Graham and Harvey (2001) found that small firms rely more on payback than large firms do, and Petersen and Rajan (1994) found that relationship banks lend more readily to small firms, both relevant to the owner's choices here.
Payment = $512,000 × 0.00625 / (1 − 1.00625^−120) = $6,077.53 a month.
Over ten years the owner would pay $729,304 in total, of which $217,304 is interest.
Problem 2: The First Year of Amortization
In the first month, interest is $512,000 × 0.00625 = $3,200, so $2,877.53 of the payment reduces principal. Because interest is charged on a falling balance, each later payment puts more toward principal. Over the first year, interest totals about $37,188 and principal about $35,742, leaving a balance of about $476,258. For tax purposes, only the interest is deductible; for cash planning, the whole $72,930 of annual payments must come from the business.
Problem 3: Paying a Broker's Fee Now or Later
The vessel broker offers two ways to pay a $24,000 fee: in full at closing, or $13,000 at closing and $13,000 one year later. At the business's 8 percent cost of money, the present value of the second option is $13,000 + $13,000 / 1.08 = $25,037, more than $24,000. Paying in full now is cheaper by about $1,037 in today's dollars, unless the owner's cash at closing is so tight that the difference is worth paying to keep a cushion.
Problem 4: Prepaying the Dock Lease
Dock rent is $48,000 at the start of each year, or $210,000 today for five years paid up front. The present value of the regular payments, an annuity due at 8 percent, is $48,000 × [1 − 1.08^−5] / 0.08 × 1.08, about $206,980. Prepaying would cost about $3,000 more in present value terms, so it is not a discount at the business's cost of money, and it would also tie up cash the company needs in April. The owner should decline unless the marina deepens the discount below about $207,000.
Problem 5: The Owner's Retirement Plan
The owner, 40, plans to contribute $12,000 at the end of each year to a SEP-IRA, a retirement plan available to small business owners. If the account earns 6 percent a year, its value at 65 is the future value of a 25-year annuity: $12,000 × (1.06^25 − 1) / 0.06, about $658,374. Contributing at the start of each year instead raises the total to about $697,877, because each contribution earns one more year of return. Waiting five years to start, with the same 6 percent, would leave her with about $441,400 at 65, a cost of over $200,000 for the delay.
What the Problems Show
Each answer turns on timing. A dollar paid later is worth less than a dollar paid now, so offers that look like savings, prepaying rent, can cost money, while small differences in timing, contributing at the start of the year, add up over decades. Adelman and Marks (2014) stress that a small business owner should evaluate every financing offer at the business's own cost of money rather than at face value.
References
Adelman, P. J., & Marks, A. M. (2014). Entrepreneurial finance (6th ed.). Pearson.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Petersen, M. A., & Rajan, R. G. (1994). The benefits of lending relationships: Evidence from small business data. Journal of Finance, 49(1), 3-37. https://doi.org/10.1111/j.1540-6261.1994.tb04418.x
Reading the FIN 3140 Module 5 assignment instructions
Module 5, Time Value of Money, has one of the six FIN-3140 written assignments that together count 36 percent of the grade; like the others, it consists of questions and problems. The set asks for present and future values, loan payments with schedules and comparisons of options paid at different times. The midterm exam, which is proctored, also tests these skills. The company, offers and rates here are composites. Graham and Harvey's survey shows that discounted cash flow methods are now standard even in practice, and Petersen and Rajan show why a small firm's loan terms depend on its banking relationship. Expect time value of money problems for business and personal decisions, solved with a financial calculator or spreadsheet.
Inside the FIN 3140 Module 5 example
Each problem states the decision, sets up the formula with the actual figures and reports the result with what it means. Problem 1 computes the loan payment and total interest, and Problem 2 splits the first year into interest and principal for tax and cash planning. Problems 3 and 4 compare timing options at the business's cost of money, and Problem 5 projects retirement savings under two contribution timings and shows the cost of waiting. A closing paragraph draws out the common lesson. Each problem shows its inputs, the method and the answer in plain words. Answers state what the owner should do.
FIN 3140 Module 5 rubric: what earns full marks
Timing is graded closely in this set: when each payment falls matters as much as the formula. Mentors look for correct formulas and results, the right treatment of timing, such as annuities due versus ordinary annuities, and an explanation of what each answer means for the decision. Showing the setup, not only the answer, earns partial credit when a step goes wrong. Recognizing when an apparent discount is not one demonstrates the purpose of the module. Mentors give credit for correct inputs and answers, and for interpreting each result as a decision. Showing each cash flow on a timeline helps. Answers that state whether each cash flow comes at the start or end of a period, and why, avoid the most common errors in these problems.
FIN 3140 Module 5 help from the desk
Time value problems lose points for using the annual rate with monthly periods, for treating payments at the start of a period as if they came at the end and for reporting a number without saying which option to choose. Match the rate to the period. Decide whether each cash flow is an ordinary annuity or an annuity due. Discount at the business's own cost of money. State the decision each result supports. A free first sample of your own FIN-3140 Module 5 problems is available on request. List the calculator inputs for each problem so the mentor can follow your work. Check the sign convention for cash flows.
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FIN 3140 Module 5 questions, answered
Where can I find a free FIN 3140 Module 5 sample paper?
The whale-watching company problem set above computes a vessel loan payment and amortization, compares payment timings, evaluates a lease prepayment and projects a retirement plan.
How do you calculate a monthly loan payment?
Multiply the loan by the monthly rate and divide by one minus (1 + monthly rate) raised to the negative number of months.
What is the difference between an ordinary annuity and an annuity due?
Dock rent paid each January is an annuity due; paid each December it would be ordinary, earning one less period of interest.
Is prepaying a lease always a good deal?
Only if the prepayment is less than the present value of the regular payments at the business's cost of money.
What is a SEP-IRA?
A retirement plan that lets self-employed people and small business owners make tax-deductible contributions for themselves and eligible employees.