Answers to Homework Assignment for Chapter 6
E6-5
Using Table 6-5: Present Value of an Annuity Due
( a )
$50,000 x 4.96764 = $248,382
( b )
$50,000 x 8.31256 = $415,628
( c )
$50,000 x (5.65022 - 4.11141 = 1.53881) = $76,940.50
E6-6
Using Table 6-1: Future Value of a Single Sum
( a )
Future Value of $12,000 @ 10% for 10 years,
($12,000 x 2.59374 = $31,124.88)
( b )
Future value of an ordinary annuity of $620,000 at 10%
for 15 years ($620,000 x 31.77248 = $19,698,938)
Deficiency ($20,000,000 - $19,698,938 = $301,062)
( c )
$75,000 discounted at 8% for 10 years:
$75,000 x .46319 = $34,739.25
Accept the bonus of $40,000 now.
E6-12
Building A - PV = $610,000.
Building B -
Rent x (PV of annuity due of 25 years at 12%) = PV
$70,000 x 8.78432 = PV
$614,902.40 = PV
Building C -
Rent x (PV of ordinary annuity of 25 periods at 12%) = PV
$6,000 x 7.84314 = PV
$47,058.84 = PV
Cash purchase price of Building C:
$650,000.00
PV of rental income:
($47,058.84)
Net present value (PV):
$602,941.16
Therefore, Brubaker, Inc should lease Building C since its present value of its
net cost is the smallest.