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Basic Value Concepts

1. Mario's auto shop plans to buy a new garage in three years to have more space for repairing it's trucks. The garage cost \$400,000. What lump sum amount should the company invest now to have the \$400,000 available at the end of the 3 yr period?
Assume that the company can invest money at:
a. eight percent
b. twelve percent

2. Ivory products purchased a new copier that will save \$5,000 per year in copying cost. They plan on keeping the copier for 6yrs with no salvage value. What is the max purchase price the company will pay for the copier if the company's required rate of return is:
a. Ten percent
b. Sixteen percent

3. Mary won a jackpot at a gambling casino. The casino will pay out \$50,000 per year for 20 years. If she invest at 10% rate of return, what is the present value of her winnings, and did she really win a million dollars? Explain.

Solution Summary

This solution shows step-by-step calculations to determine the lump sum amount the company should invest to reach \$400,000 at the end of the 3 year period at eight and twelve percent.

\$2.19