Share
Explore BrainMass

Paul Parent Investment Evaluation

1) Paul Parent is evaluating investment alternatives for saving for his infant daughters college education. He has estimated that he will need $225,000 upon her graduation from high school in 18 years. Paul has the following options:

1. Locking in an 8 percent investment with a lump sum payment today
2. Earning a 9 percent return based on annual even contributions over the next 18 years, or
3. Locking in a 7 percent investment for $5,000 and earning a 10% return on even annual contributions.

Paul has the relevant present value tables that show the following factors:

7% 8% 9% 10%
Future value of $1 for 18 years 3.379 3.996 4.717 5.559
Future value of an annuity for 18 years 33.999 37.45 41.301 45.599
Present value of $1 for 18 years 0.285 0.250 0.215 0.180
Present value of an annuity for 18 years 9.958 9.372 8.787 8.201

Assuming Paul can afford any of these options, which alternative results in the lowest investment?

2) Lisa's Boutique is renting prime store space at the Regional mall and just signed a five-year lease effective January 1, 20X4 with the following terms:

Refundable security deposit $1,500
Monthly lease payments $3,000
Lease bonus due at signing $18,000

Lisa has had to make significant renovations to the store prior to moving in. The renovations cost $50,000 and have a useful life of 8 years. What will Lisa's Boutique record occupancy expense for the year ended on December 31, 20X4?

Solution Preview

Note: The present value in the table for 7% are not correct.

Question 1
7% 8% 9% 10%
Future value of $1 for 18 years 3.3799 3.9960 4.7171 5.5599
Future value of an annuity for 18 years 33.9990 37.4502 41.3013 45.5992
Present value of $1 for 18 years 0.2959 0.2502 0.2120 0.1799
Present value an annuity for 18 years 10.0591 9.3719 8.7556 8.2014
OPTIONS ...

Solution Summary

Two accounting problems are solved.

$2.19