Question

On January 1 of this year, Shannon Company completed the following transactions (assume a 9% annual interest rate): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

1. Bought a delivery truck and agreed to pay $60,100 at the end of three years.
2. Rented an office building and was given the option of paying $10,100 at the end of each of the next three years or paying $28,100 immediately.
3. Established a savings account by depositing a single amount that will increase to $90,200 at the end of seven years.
4. Decided to deposit a single sum in the bank that will provide 9 equal annual year-end payments of $40,100 to a retired employee (payments starting December 31 of this year).

Required

a. What is the cost of the truck that should be recorded at the time of purchase? (Round your answer to nearest whole dollar.)

b. Which option for the office building results in the lowest present value?

• Pay in single installment

• Pay in three installments

c. What single amount must be deposited in this account on January 1 of this year? (Round your answer to nearest whole dollar.)

d. What single sum must be deposited in the bank on January 1 of this year? (Round your answer to nearest whole dollar.)

Answer 1

	Amount	PV at the end of 3 years@9%	Total
a	60,100	0.772	46,397.20
	Amount	PV at the end of each years@9%	Total
b	10,100	0.917	9,261.70
	10,100	0.842	8,504.20
	10,100	0.772	7,797.20
		PV value of all payments	25,563.10
		One time payment	28,100.00
		It should be in 3 years.
c	Amount	PV value at end of 7 years@9%	Total
	90,200.00	90200*.547	49,339.40
d	Amount	PV value at end of each years@9%	Total
1	40,100.00	0.92	36,771.70
2	40,100.00	0.84	33,764.20
3	40,100.00	0.77	30,957.20
4	40,100.00	0.71	28,390.80
5	40,100.00	0.65	26,065.00
6	40,100.00	0.60	23,899.60
7	40,100.00	0.55	21,934.70
8	40,100.00	0.50	20,130.20
9	40,100.00	0.46	18,446.00
			240,359.40
or
	40,100.00	40100*5.995	240,399.50