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Chapter 6: Question 5E (page 302)

Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods. (a) \(30,000 receivable at the end of each period for 8 periods compounded at 12%. (b) \)30,000 payments to be made at the end of each period for 16 periods at 9%. (c) $30,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%

Short Answer

Expert verified

The present value of when the amount is receivable at the end of each period for 8 periods compounded at 12% will be $149029.20, at the end of each period for 16 periods at 9% will be $249,376.80 and present value payable at the end of seventh, eighth, ninth, and tenth periods will be $46,164.

Step by step solution

01

Computation of present value when the amount is receivable at the end of each period for 8 periods.

Presentvalue=Receivables×PVannuityfactor=30,000×4.88965=$149,029.20

02

Calculation of Present Value of the payment made at the end of each period

Presentvalue=Receivables×PVannuityfactor=30,000×8.31256=$249,376.80

03

Computation of present value payable at the end of seventh, eighth, ninth, and tenth periods.

Presentvalue=Receivables×PVannuityfactor=30,000×(0.45234+0.40388+0.36061+0.32197)=$46,164

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Most popular questions from this chapter

Using the appropriate interest table, answer the following questions. (Each case is independent of the others). (a) What is the future value of 20 periodic payments of \(4,000 each made at the beginning of each period and compounded at 8%? (b) What is the present value of \)2,500 to be received at the beginning of each of 30 periods, discounted at 5% compound interest? (c) What is the future value of 15 deposits of \(2,000 each made at the beginning of each period and compounded at 10%? (Future value as of the end of the fifteenth period.) (d) What is the present value of six receipts of \)1,000 each received at the beginning of each period, discounted at 9% compounded interest?

The Black Knights Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Black Knights has decided to locate a new factory in the Panama City area. Black Knights will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three very similar buildings that will meet their needs. Building A: Purchase for a cash price of \(600,000, useful life 25 years. Building B: Lease for 25 years with annual lease payments of \)69,000 being made at the beginning of the year. Building C: Purchase for \(650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of \)7,000. Rental payments will be received at the end of each year. The Black Knights Inc. has no aversion to being a landlord

Instructions In which building would you recommend that The Black Knights Inc. locate, assuming a 12% cost of funds?

Adams Inc. will deposit $30,000 in a 6% fund at the end of each year for 8 years beginning December 31, 2017. What amount will be in the fund immediately after the last deposit?

During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for \(30,000 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation.

The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Stacy estimates that the vines will bear grapes that can be sold for \)60,000 each year. For the next 20 years (11–30), she expects the harvest will provide annual revenues of \(110,000. But during the last 10 years (31–40) of the vineyard’s life, she estimates that revenues will decline to \)80,000 per year.

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Instructions Dick Button has offered to buy Stacy’s vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept?

You have been hired as a benefit consultant by Jean Honore, the owner of Attic Angels. She wants to establish a retirement plan for herself and her three employees. Jean has provided the following information. The retirement plan is to be based upon annual salary for the last year before retirement and is to provide 50% of Jean’s last-year annual salary and 40% of the last-year annual salary for each employee. The plan will make annual payments at the beginning of each year for 20 years from the date of retirement. Jean wishes to fund the plan by making 15 annual deposits beginning January 1, 2017. Invested funds will earn 12% compounded annually. Information about plan participants as of January 1, 2017, is as follows.

Jean Honore, owner: Current annual salary of \(48,000; estimated retirement date January 1, 2042.

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Gavin Bryars, part-time bookkeeper: Current annual salary of \)15,000; estimated retirement date January 1, 2032.

In the past, Jean has given herself and each employee a year-end salary increase of 4%. Jean plans to continue this policy in the future.

Instructions

(a) Based upon the above information, what will be the annual retirement benefit for each plan participant? (Round to the nearest dollar.) (Hint: Jean will receive raises for 24 years.)

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(c) What is the amount of each annual deposit Jean must make to the retirement plan?
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