Question

For each of the following situations, do the necessary calculations and make a decision:
a. A company purchases equipment for $75,000. It is to pay $15,000 on the delivery date, $22,500 one year from the delivery date, and $37,500 two years from the delivery date. How much should the entity record as the cost of the equipment? The purchase agreement doesn't require the company to pay interest. Assume a discount rate of 10 percent.
b. A woman saving for her retirement invests $50,000 in a long-term investment certificate. The certificate pays 5 percent interest per year compounded annually for 18 years. How much money will the woman receive when she retires in 18 years?
c. An investment promises to pay investors $25,000 per year for 12 years. The first payment will be received one year from the date the investment is made. What is the maximum amount the investor should pay for the investment if her discount rate is 8 percent?
d. A company borrows $500,000 for four years from a group of lenders. The company doesn't have to pay interest each year but must pay the principal and interest at the end of the loan term. Assuming an interest rate of 9 percent, how much will the company have to pay the lenders when the loan comes due in four years?
e. Would you prefer to receive $30,000 today, $50,000 in five years, or $8,000 at the end of each of the next five years? Assume a discount rate of 10 percent.



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  • CreatedFebruary 26, 2015
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