FA Manufacturers must make several investment decisions related to its business operations. Interest is compounded annually. Analyze the following independent situations to help FA make a profitable investment.
a. FA Manufacturers reported a $ 150,000 debt that matures in eight years. In order to accumulate sufficient funds to pay for the debt, the company decided to make eight equal annual payments into a fund paying 5% interest. What amount must FA Manufacturers deposit into the fund at the end of each year so that the company will be able to liquidate its debt?
b. On January 1, 2014, FA Manufacturers decided to purchase a piece of heavy machinery. FA agreed to pay $ 50,000 on the date of purchase and would like to pay the remaining balance with six annual installments of $ 20,000 commencing at the end of 2014. Given an interest rate of 8%, what value should FA give to the machinery?
c. FA purchased a new machine and wants to pay for it using five equal annual installments of $ 40,000. The payments start in one year. Given an interest rate of 10%, at what amount should FA value the machine?