Question

Each of the following parts is independent. Ignore income taxes.
1. Express Delivery plans to build a new warehouse in four years to have more space for its products awaiting shipment. The warehouse will cost $500,000. What lump-sum amount should the company invest now to have the $500,000 available at the end of the four-year period? Assume that the company can invest money at
a. 6%.
b. 10%.
2. Washington Products Inc. can purchase a new electronic data storage server that will save $3,000 per year in paper storage and warehouse costs. The data server will last for five years and have no salvage value. What is the maximum purchase price that Washington Products would be willing to pay for the copier if the company’s required rate of return is
a. 9%?
b. 15%?
3. Susan has just won the million-dollar Power Lottery jackpot at a gambling casino. The casino will pay her $50,000 per year for 20 years as the payoff. If Susan can invest money at a 5% rate of return, what is the present value of her winnings? Did she really win a million dollars? Explain.


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  • CreatedJuly 08, 2015
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