Chap006 - Student Name Instructor Class McGraw-Hill/Irwin...

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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-05 CLAUSSEN PURCHASE Estimated Cash Flows Yearly Time Interest Cash Flow Period Rate *Factor PVA PV Years 1-5 $ 70,000 5 8% 3.99271 $ 279,490 Years 6-10 70,000 5 10% 3.79079 265,355 265,355 5 8% 0.68058 $ 180,596 Years 11-20 70,000 10 12% 5.65022 395,515 395,515 5 10% 0.62092 245,583 245,583 5 8% 0.68058 167,139 End of Year 20 400,000 10 12% 0.32197 54,424 Maximum Purchase Price $ 681,648 Correct! * Use the Present and Future Value Tables in the text or enter the proper formula rounded to 5 decimal places
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Given Data P06-05: CLAUSSEN PURCHASE Anticipated cash flows per year for 20 years $ 70,000 Selling price in 20 years $ 400,000 Desired rate of return: Years 1-5 8% Years 6-10 10% Years 11-20 12%
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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-06 Part 1: JOHN JAMISON PV of $1 factor = 30,000 = 0.5 * 60,000 *Present value of $1: n=?, i=8% (from Table 2, n=approximately 9 years) Correct! Part 2: JASMINE TEA COMPANY Annuity factor = $28,700 = 4.10000 * $7,000 Present value of an ordinary annuity of $1: n=5, i=? (from Table 4, i = approximately 7 %) Correct! Part 3: SAM ROBINSON Annuity amount = $10,000 = $1,558 = Payment 6.41766 * Correct!
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