There are three factors that affect the present value of an annuity. 1) discount rate, 2) the number of discount periods, and 3) the amount of the periodic receipts or payments. I understand #1, but am having a problem with 2 and 3.
1.) Cannon Company is considering a capital project that will return $100,000 each year for five years. At the company's hurdle rate of 10%, the present value of the annuity is $379,100. If the return on investment in the first year is $37,910, what is the return of investment that year? (a) $137,910 (b) $100,000 (c) $62,09
You have won the lottery! Your winnings are: Lottery total $36,800,000 Discount rate 7% # Payments 20 Payments per yr. $1,840,000 If you could choose a lump sum of $20,000,000 or payments which would you choose and why?
On January 1, a company issues bonds with a par value of $300,000. The bonds mature in 5 years and pay 8% annual interest each June 30 and December 31. On the issue date, the market rate of interest is 6%. Compute the price of the bonds on their issue date. The following information is taken from present value tables: Pre
A loan officer states that "Thousands of dollars can be saved by switching to a 15-year mortgage from a 30-year mortgage". Calculate the difference in payments on a 30 year mortgage at 9% interest versus a 15 year mortgage with 8.5% interest. Both mortgages are $100,000 and have a monthly payments. What is the difference in
A client has recently deposited $20,000 in a savings account which pays 8% interest compounded annually. He plans to withdraw a constant amount each year for 10 years, so that at the end of the 10th year the balance will be zero. How much may he withdraw at the end of each year?
1- Annuity Due. A store offers two payment plans. Under the installment plan, you pay 25 percent down and 25 percent of the purchase price in each of the next 3 years. If you pay the entire bill immediately, you can take a 10 percent discount from the purchase price. Which is a better deal if you can borrow or lend funds at a 5
On December 30, 2004, Cey, Inc. purchased a machine from Frank Corp. in exchange for a noninterest-bearing note requiring eight payments of $40,000. The first payment was made on December 30, 2004, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%.
On January 15, 2004, Grant Corp. adopted a plan to accumulate funds for environmental improvements beginning July 1, 2008, at an estimated cost of $2,500,000. Grant plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually. The first deposit was made on July 1, 2004. Future value facto
For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence? a. A capital lease is entered into with the initial lease payment due one month subsequent to the signin
You want to bank enough money to pay for 4 years of college at $20,000 per year for your child. The savings account will pay an effective rate of 5% per year. The first annual payment for tuition and for room and board is made on your child's 17th birthday. If you deposit the money on your child's 3rd birthday, how much must you
I'm trying to find the formula in excel to help calculate the answers for part 1 of this problem. I do not understand how $13,421 was calculated. I tried using FV and I do not have enough variables to calculate the answer. You need $28,974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certi
Ms. Amidala Inflamada is celebrating today her birthday and 15th anniversary as the Executive Secretary for Mr. Num Bei Wan, President of Last Chance, Inc. During the day she was talking to her closest friends how turbulent where the first days she came in to work after her graduation from the University when she was only 22 ye
1. Growth Rates: - XYZ Corporation's 2005 sales were $12 million. Its 2000 sales were $6 million, a. At what rate have sales been growing? b. If someone made the statement: "Sales doubled in 5 years. This represents a growth of 100 percent in 5 years, so, dividing 100 percent by 5, we find the growth rate to be 20 percent pe
Wiseman Video plans to make four annual deposits fo $2,000 each to a special building fund. The fund's assests will be invested in mortgage instruments expected to pay interest at 12% on the fund's balance. Using the appropriate annuit table determine how much will be accumulated in the fund on December 31, 2009 under e
A single person who has a high level of earnings and paid social security taxes throughout her life expects to retire at age 65 and receive $10,000 per year until she dies. Assume the person lives to age 80 and use a discount rate (10%) to find the present value of the benefit received by person when he retires.
Kim and Dan Bergholt are both government workers. They are considering purchasing a home in the Washington D.C. area for about $280,000. They estimate monthly expenses for utilities at $220, maintenance at $100, property taxes at $380, and home insurance payments at $50. Their only debt consists of car loans requiring a monthly
Sam deposited $1,000 dollars today in a fixed-rate, tax-deferred annuity, which guarantees an 8% return with quarterly compounding. Commencing with the next year, he subsequently deposits $250 every 3 months at the end of the period, for the next 9 years. What is the value of the annuity at maturity? a. $10,720 b. $12,99
Mrs. S has 4 grandchildren, the oldest will enter college in 10 years. she wants to help pay for their college educations by giving each child $15,000 @ the beginning of each school year for each of the 4 years required to finish college. Toward that end, she just sold a small house she had owned for $40,000 & has invested the p
My company wishes to accumulate 1,300,000 by Dec.31, 2017, to retire bonds outstanding. We deposit 300,000 on Dec.31, 2007 which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, I would like to know how much should be deposited at the end of each quarter for 10 yrs. to ensure t
Ch. 5 4) Calculating Annuity Present Value. An investment offers $4,500 per year for 15 years, with the first payment occurring 1 year from now. If the required return is 10 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever? 20) Calculating L
Mr. Tucker owns investment land ($690,000 FMV AND $228,000 adjusted basis) that he is interested in selling. Several prospective purchasers have offered to pay cash, but Mr. Tucker wants to avoid recognizing his entire gain in the year of sale. Accordingly, he is considering selling the land to the Tucker Family Corporation in r
What is the Future Value of an Annuity with $7000 for a period of 15 years at an interest rate of 9% per annum? Is there a difference in Future Value if the payments are due at the beginning and end of the period?
A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $73,425 to your credit in the plan. The plan anticipates earning 9% interest. Given the following information, how much will your annual benefits be? Present value of $1 PVIF = .18 Future va
What is "present value"? What is an example of the "present value" concept? How does a single cash flow present value example differ from an annuity calculation?
How do these agencies below impact the administration and enforcement of ERISA: 1) US Department of Labor (DOL) 2) Internal Revenue Service (IRS) 3) Pension Benefit Guaranty Corporation (PBGC)
Your rich godfather has offered you a choice of one of the three following alternatives: $10, 000 now; $2,000 a year for eight years: or $24,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same alt
Find the present value of the following offer? A 10 percent interest rate should be used. A trust fund would be set up for the next 8 years. At the end of that period, Dr. Wolf would receive the proceeds (and discount them back to the present at 10 percent). The trust fund called for semiannual payments for the next 8 year
Evaluate Offer II. Dr. Harold Wolf of Medical Research Corporation (MRC) was thrilled with the response he had received from drug companies for his latest discovery, a unique electronic stimulator that reduces the pain from arthritis. The process had yet to pass rigorous Federal Drug Administration (FDA) testing and was stil
An ordinary annuity pays 7.55% compounded monthly. A. Morty Zayshawn wants to make equal monthly deposits in his account for 30 years in order to then make equal withdrawals of $2,000 per month for the next 15 years, reducing the balance to zero. How much should be deposited each month for the first 30 years?