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Future and present value problems: Dwayne Wade, Serena Willi

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Presented below are three unrelated situations.

(a) Dwayne Wade Company recently signed a lease for a new office building, for a lease period of
10 years. Under the lease agreement, a security deposit of $12,000 is made, with the deposit to be
returned at the expiration of the lease, with interest compounded at 10% per year. What amount
will the company receive at the time the lease expires?

(b) Serena Williams Corporation, having recently issued a $20 million, 15-year bond issue, is committed
to make annual sinking fund deposits of $600,000. The deposits are made on the last day
of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire
the bonds? If not, what will the deficiency be?

(c) Under the terms of his salary agreement, president Rex Walters has an option of receiving either an
immediate bonus of $40,000, or a deferred bonus of $70,000 payable in 10 years. Ignoring tax considerations,
and assuming a relevant interest rate of 8%, which form of settlement should Walters accept?

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Future and present value problems

Presented below are three unrelated situations.

(a) Dwayne Wade Company recently signed a lease for a new office building, for a lease period of 10 years. Under the lease agreement, a security deposit of $12,000 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 10% per year. What amount will the company receive at the time the lease expires?

FVA = W x (1 + i)n - 1 where FVA is the future value
i W is the amount required to deposit ...

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