Question

E9-13 (Algo) Computing Four Present Value Problems LO 9-7 On January 1 of this year, Shannon Company completed the following transactions (assume a 10% 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.) a. Bought a delivery truck and agreed to pay $61,200 at the end of three years. b. Rented an office building and was given the option of paying $11,200 at the end of each of the next three years or paying $29,200 immediately. c. Established a savings account by depositing a single amount that will increase to $92,400 at the end of seven years. d. Decided to deposit a single sum in the bank that will provide 10 equal annual year-end payments of $41,200 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.) Cost of the truck 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.) Amount to deposit d. What single sum must be deposited in the bank on January 1 of this year? (Round your answer to nearest whole dollar.) Amount to deposit

Answer 1

a)

Future Value=	$         61,200
Time =	3 years
Rate=	10%
PV=	FV
	(1+r)^3
PV=	$         61,200
	(1+0.10)^3
PV=	$         61,200
	1.331
Cost that should be recorded a time of purchase=	$   45,980

b)

Option 1
Pay immidiately=	$   29,200.00
Option 2
Payment amount=	$   11,200.00
Rate=	10%
Time=	3 Years
PV=	11200*2.4868
PV=	$   27,852.16
If paid Option 2 is paid
Saving=	$     1,347.84

Company should pay in three installment

c)

Future Value=	$         92,400
Time =	7 years
Rate=	10%
PV=	FV
	(1+r)^7
PV=	$         92,400
	(1+0.10)^7
PV=	$         92,400
	1.9487171
PV=	$   47,416

Amount that should be deposited is $ 47,416

d)

Repayment amount=	$   41,200.00
Time =	10 years
Rate=	10%
PV of repayment=	41200*6.1446
PV of repayment=	$ 253,158

Single amount that needs to be deposited is $ 253,158

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