February 22-2011

# February 22-2011 - \$1,500 \$1,500 \$1,500 \$1,500 \$4,000...

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EXERCISE 6-3 (a) \$13,223.95 PV = 9000 FV = ? PMT = 0 n = 5 i = 8% (b) \$3,905.34 PV = 9000 FV = ? PMT = 0 n = 8 i = 11% (c) \$285,952.34 PV = 0 FV = ? PMT = 9000 n = 15 i = 10% (d) \$112,159.89 PV = ? FV = 0 PMT = 9000 n = 20 i = 5%

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PROBLEM 6-5 (a) The present value of \$55,000 cash paid today is \$55,000 . (b) Time diagram: i = 2 1 / 2 % per quarter ? \$4,000 \$4,000 \$4,000 \$4,000 \$4,000 0 1 2 18 19 20 n = 20 quarters PV = \$62,356.66 PV= ? PMT = 4000 FV = 0 n = 20 I = 2.5% (c) Time diagram: i = 2 1 / 2 % per quarter \$18,000 \$1,800 \$1,800 \$1,800 \$1,800 \$1,800 0 1 2 38 39 40 n = 40 quarters PV = \$46,314.62 PV = ? FV = 0 PV = 1800 n = 40 I = 2.5% The present value of option (c) is \$18,000 + \$46,314.62, or \$64,314.62 .
PROBLEM 6-5 (Continued) (d) Time diagram: i = 2 1 / 2 % per quarter
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Unformatted text preview: \$1,500 \$1,500 \$1,500 \$1,500 ? \$4,000 \$4,000 \$4,000 0 1 11 12 13 14 36 37 n = 12 quarters n = 25 quarters PV of 12 \$4,000 payments is \$41,031.06 PV of 25 \$1,500 payments is \$20,549.33 PV of 12 payments PV = ? FV = 0 PMT = 4000 n = 12 i = 2.5% PV of 25 payments at the beginning of year 13 = 27636.56 PV = ? FV = 0 PMT = 1500 n = 25 i = 2.5% PV of 27636.56 at the beginning of year 1 = 20549.33 PV = ? FV = 27636.56 PMT = 0 n = 12 i = 2.5% The present value of option (d) is \$41,031.06 + \$20,549.33, or \$61,580.39 . Present values: (a) \$55,000 . (b) \$62,356.66. (c) \$64,314.62. (d) \$61,580.39 . Option (c) is the best option, based upon present values alone....
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## This note was uploaded on 04/29/2011 for the course ACCT 3001 taught by Professor Erickson during the Spring '10 term at University of Minnesota Duluth.

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February 22-2011 - \$1,500 \$1,500 \$1,500 \$1,500 \$4,000...

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