Question

2 value: 8.00 points On January 1 of this year, Shannon Company completed the following transactions (assume a 8% annual interest rate): F factor(s) from the tables provided.) SI PY ofS1 EV ot$1, and PYA0 1) Use the appropriate 1. Bought a delivery truck and agreed to pay $61,100 at the end of three years. 2. Rented an office building and was given the option of paying $11,100 at the end of each of the next three years or paying $29,100 immediately. 3. Established a savings account by depositing a single amount that will increase to $92,200 at the end of seven years. 4. Decided to deposit a single sum in the bank that will provide 8 equal annual year-end payments of $41,100 to a retired employee (payments starting December 31 of this year). Required: 1. What is the cost of the truck that should be recorded at the time of purchase? (Round your answer to nearest whole dollar.) t of the truck 2. Which option for the office building results in the lowest present value? O Pay in single installment O Pay in three installments 3. What single amount must be deposited in this account on January 1 of this year? (Round your answer to nearest whole dollar.) t to d 4. What single sum must be deposited in the bank on January 1 of this year? (Round your answer to nearest whole dollar.) t to

Answer 1

Requirement 1

The cost of Truck to be recorded in books today is = $48513

Calculated as  

Taking present value factor @8%

Present Value of Truck = 61100 x 0.794

$                                           48,513.40

Requirement 2

Paying in Installments result in lower present value

calculated as

Taking present value factor @8%

Present Value of $11100 paid at the end of each of the next three years
=11100*2.577			$                                                 28,605
If Paid immediately			$29,100

Requirement 3

Single Amount to be deposited today to get $92200 at the end of seven years is $53753

Taking present value factor @8%

Single amount to be deposited today to get $92200 at the end of Seven years
=92200*.583			$                                                 53,753

Requirement 4

Single amount to be deposited to get $41100 at the end of each year for eight year is $236202

Calculated as

Taking present value factor @8%

Present Value of Future Annuities
=$41100*5.747			236201.7

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