Question

Presented below are three unrelated situations. Wildhorse Company recently signed a lease for a new office building, for a lease period of 11 years. Under the lease agreement, a security deposit of $12,290 is made with the deposit to be returned at the expiration of the lease, with interest compounded at 5% per year. Click here to view factor tables What amount will the company receive at the time the lease expires? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer too decimal places, eg. 458,581.) The company will receive $

Answer 1

Answer to Question 1:

Amount Deposited = $12,290
Interest Rate = 5%
Lease Period = 11 years

Future Value = $12,290 * FV of $1 (5%, 11)
Future Value = $12,290 * 1.71034
Future Value = $21,020

The company will receive $21,020

Answer to Question 2:

Annual Deposit = $607,200
Number of Deposits = 15
Interest Rate = 10%

Future Value = $607,200 * FVA of $1 (10%, 15)
Future Value = $607,200 * 31.77248
Future Value = $19,292,250

No, the funds will not be sufficient

Deficiency = $20,083,600 - $19,292,250
Deficiency = $791,350

Answer to Question 3:

Deferred Bonus = $91,000
Period = 10 years
Interest Rate = 4%

Present Value = $91,000 * PV of $1 (4%, 10)
Present Value = $91,000 * 0.67556
Present Value =$61,476

Present value of deferred bonus is $61,476. So, you should accept immediate bonus of $71,500