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HOMEWORK FALL 2010 ACT3391 16. (1 point) Assume that on 12-31-11 Lobnitz Company entered into an agreement that required Lobnitz to pay a supplier \$5,000,000 on 12-31-14. Further assume that the appropriate market rate of interest for Lobnitz was 6%. As of 12-31-11, what was the present value of Lobnitz’s obligation? PV of a lump sum. FV = \$5,000,000; n = 3; i = 6%; factor = 0.83962 PV = \$4,198,100 17. (1.5 points) Assume that on 12-31-10 Y Company entered into an agreement that required Y to pay a supplier \$1,500,000 every year until 2021. Y’s first payment of \$1,500,000 was scheduled to take place on 12-31-11. Further assume that the market rate of interest for Y is 8%. As of 12-31-10, what was the present value of Y’s obligation? PVOA. pymts = \$1,500,000; n = 11; i = 8%; factor = 7.13896 PV = \$10,708,440 18. (4.5 points) Assume that on 12-31-08 Grove Company entered into an agreement that required Grove to make the following payments: Starting 12-31-09, \$150,000 every 12-31 until 2015 12-31-16 \$50,000 Starting 12-31-17, \$25,000 every 12-31 until 2055

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