Phil Goode will receive $102,000 in 19 years. Sounds great! However if current interest rates suggested for discounting are 18 percent, what is the present worth of his future "pot of gold"?

2)Carrie Tune will receive $18,250 a year for the next 19 years as payment for a song she has just written. If a present 8 percent discount rate is applied:

a-1. Calculate the present value.

b-1. Calculate the present value if the payments will be made at the beginning of each year.

3)Sheila's Society Clothing Manufacturer has collection centers around the country to speed up cash collections. The company also makes its disbursements from remote disbursement centers, so cheques written by Sheila's take longer to clear the bank. Collection time has been reduced by two days and a half days and disbursement time has been increased by one and a half days because of these policies. Excess funds are being invested in short-term instruments yielding 5 percent per annum.

a. If the firm has $4.90 million per day in collections and $3.90 million per day in disbursements, how many dollars has the cash management system freed up? 

b. How much can Sheila's earn per year on short-term investments made possible by the freed-up cash? 

Answer rating: 100% (QA)

1 To calculate the present worth or present value PV of the future amount Phil Goode will receive we can use the formula for the present value of a si... View the full answer