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Chapter 6: Question 8BE (page 302)
Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 8%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat?
The inheritance which must be invested to have enough to buy the boat at retirement is $201,891.
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Question: Explain how the future value of an ordinary annuity interest table is converted to the future value of an annuity due interest table.
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%
At the end of 2017, Sawyer Company is conducting an impairment test and needs to develop a fair value estimate for machinery used in its manufacturing operations. Given the nature of Sawyer’s production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Sawyer’s accountants have developed the following cash flow information for the equipment.
Net Cash Flow Probability Year Estimate Assessment 2018 \(6,000 40% 9,000 60% 2019 \) (500) 20% 2,000 60% 4,000 20% Scrap Value 2019 $ 500 50% 900 50%
Instructions Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2017. Use a 6% discount rate. Assume all cash flows occur at the end of the year.
Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $20,000 per year on June 30, beginning in 2021 and continuing through 2024. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 2017–2020. Instructions
(a) How much must the balance of the fund equal on June 30, 2020, in order for Clarence to satisfy his objective?
(b) What are each of Clarence’s contributions to the fund?
Question:Assume the same situation as in Question 11, except that the four equal amounts are deposited at the beginning of the period rather than at the end. In this case, what amount must be deposited at the beginning of each period? (Round to two decimals.)
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