Question

E9-13 LO9-7 Computing Four Present Value Problems On January 1 of this year, Shannon Company completed the following transactions (assume a 10% annual interest rate): a. Bought a delivery truck and agreed to pay $60,000 at the end of three years. b. Rented an office building and was given the option of paying $10,000 at the end of each of the next three years or paying $28,000 immediately. Established a savings account by depositing a single amount that will increase to $90,000 at the end seven years. d Decided to deposit a single sum in the bank that will provide 10 equal annual year end $40,000 to a retired employee (payments starting December 31 of this year).

Answer 1

Part 1

Cost of truck = 60000*0.75131 = $45079

PV factor of $1 i=10%, n = 3 = 0.75131

Part 2

Pay in three instalments

(10000*2.48685) = $24869 is less than $28000

PVA factor of $1 i=10%, n = 3 is 2.48685

Part 3

Amount to deposit = 90000 * 0.51316 = $46184

PV factor of $1 i=10%, n = 7 = 0.51316

Part 4

Amount to deposit = 40000*6.14457 = $245783

PVA factor of $1 i=10%, n = 10 is 6.14457