4.8
Determine if the deposit’s F value in year 10 equals the $20 million target amount.
First use Equation [2.7] to find P with g = 0.1 and i = 0.0525. all monetary terms are
in $ million.
P = 1{[1- (1.1/1.0525)
10
]/-0.0475}
= 1{-0.5549/-0.0475}
= 11.68236
F = 11.68236(F/P,5.25%,10)
= 11,68236(1.66810)
= $19.4873 million
The deposits fall short of the target by $512,700. A spreadsheet solution follows.
4.9
Subscripts are C for contract service and B for Burling Coop installed.
PW
C
= -75,000(P/A,6%,3) – 100,000(P/A,6%,2)(P/F,6%,3)
= -75,000(2.6730) – 100,000(1.8334)(0.8396)
= $- 354,407
PW
B
= -150,000 – 60,000(P/A,6%,5)
= $-402,744
The contract service is a better deal with a smaller PW of costs.
4.10
Semiannual bond dividend is 1000(0.05)/2 = $25 per 6 months. Semiannual interest
rate is 5%/2 = 2.5%.
PW = -825 + 25(P/A,2.5%,16) + 800(P/F,2.5%,16)
= -825 + 25(13.0550) + 800(0.6736)
= $+40.26
Yes, the bond investment does make over the target rate since PW > 0. A
spreadsheet solution follows.
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