Question

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. On June 30, 2016, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $30,000 on the purchase date and the balance in five annual installments of $7,000 on each June 30 beginning June 30, 2017. Assuming that an interest rate of 12% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? Table values are based on: n= Cash Flow Installments Down Payment Amount Present Value Value of the equipment 2. Johnstone needs to accumulate sufficient funds to pay a $600,000 debt that comes due on December 31, 2021. The company will accumulate the funds by making five equal annual deposits to an account paying 8% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2016. Table or calculator function: Future Value: n= Deposit

Answer 1

Solution 1:

Table values are based on
n=	5
i=	12%
Cash Flow	Amount	PV Factor	Present Value
Installments	$7,000.00	3.60478	$25,233
Down Payment	$30,000.00	1	$30,000
Value of Equipment			$55,233

Solution 2:

PV Factor based on
Table or Calculator function	FVAD of $1
Future value	$600,000
n=	5
i=	8.00%
FV factor	6.33593
Annual Deposit	$94,698

Solution 3:

PV Factor based on
Table or Calculator function	PVAD of $1
Payment:	$140,000
n=	20
i=	12.00%
PV factor	8.36578
Liability:	$1,171,209