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Chapter 6-2 HW

# Chapter 6-2 HW - E6-13 Time Diagram PV = PV OA = Messier...

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E6-13 Time Diagram: Messier, Inc. PV = ? i = 5% PV - OA = ? 0 1 2 3 n = 30 Formula for the interest payments: PV - OA = \$165,000 (15.37245) PV - OA = \$2,536,454 Formula for the principal: PV = \$3,000,000 (0.23138) PV = \$694,140 The selling price of the bonds is equal to \$2,536,454 plus \$694,140 equal to \$3,230,594 PV - OA = R (PVF - OA n,i ) PV - OA = \$165,000 (PVF - OA 30, 5% ) PV = FV (PVF n, i ) PV = \$3,000,000 (PVF 30, 5% )

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Principal \$3,000,000 interest 28 29 30
E6-14 Time Diagram: i - 8% R = PV - OA = ? \$800,000 \$8 0 1 2 15 16 ( i ) PV - OA \$800,000 (6.71008) ( ii ) Present value of the expected annual pension payments at the beginning of the current year: PV = \$5,368,064 (0.31524) PV = \$1,692,228 FV (PV n, i ) (PV - OA n, i ) Present value of the expected annual pension payments at the end of the 10 th year: PV - OA = R (PVF - OA n, i ) PV - OA = \$800,000 (PVF - OA 10, 8% ) PV - OA = \$5,368,064 PV = FV (PVF n, i ) PV = \$5,368,064 (PVF 15, 8% ) The company's pension liability (obligation) is \$1,692,228.

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800,000 \$800,000 24 25
P6-3 Time Diagram (Bid A): \$69,000 i = 9% PV - OA = R = ? \$3,000 \$3,000 \$3,000 \$3,000 \$69,000 \$3,000 0 1 2 3 4 5 6 7 n = 9 Present value of intial cost 12,000 x 5.75 = \$69,000 (incurred today)…………….. \$69,000.00 Present value of maintenance cost (years 1-4) 12,000 x \$.25 = \$3,000 \$9,719.16 Present value of resurfacing \$44,845.17 Present value of maintenance cost (years 6-9) \$6,316.80 Present value of ouflows for Bid A…………………………..

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