Question

CHAPTER 7 INSTRUCTIONS: Answer each letter in the following problems. Show work when necessary. Problem 3 a) Determine the market price of a $750,000, five-year, 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10%. b) Jill Morris is presently leasing a small business computer from Eller Office Equipment Company. The lease requires 10 annual payments of $6,000 at the beginning of each year and provides the lessor (Eller) with an 8% return on its investment. Assuming the computer has a ten-year life and will have no salvage value at the expiration of the lease, what was the original cost of the computer to Eller? c) Carey Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carey wishes to sell the land now. It has located two potential buyers: Buyer A, who is willing to pay $700,000 for the land now, and Buyer B, who is willing to make 20 annual payments of $110,000 each. Assuming that the appropriate rate of interest is 10%, to whom should Carey sell the land? Show calculations.

Answer 1

- years (5xa) fg0 Answers 3@ amant of interest halb yearly = $150,000 x 6.1. = $45,000 this interest will be discanted Ast. (hotla) far the period of 10 to market price =$45,000xPHAE(5to, loyears) + 750,000 xp/66,1oys) =445,000x 7.7217) +(6750 poox0.6139) = $347,478 +460,435 $807,913) (nearest dollar amount) D'aiginal cost for the computer - Annual payments apudpordinary amcity da = $6,000 x 6.71008 #40,260.48 1440,361) (rounded)

© © buyurt 2 wpv = 700,000 buyer B NPV = 936493.01 (: payment =190,000 mod, payments = 20 Rote de interest=101 ] so, highest apu = $936,490.00 = so, carey pynous buy from burger B