ACC305_week 3 discussions

ACC305_week 3 discussions - Week 3 discussions DISSCUSSION...

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Week 3 discussions DISSCUSSION 1 P6-4 Years 1-6: PVA = $80,000×4.35526 = $348,420.80 (table 4, n=6, i=10%) Year 7: PV = $70,000×.51316 = $35,921.20 (table 2, n=7, i=10%) Year 8: PV = $60,000×.46652 = $27,991.20 (table 2, n=8, i=10%) Year 9: PV = $50,000×.42410 = $21,205 (table 2, n=9, i=10%) Year 10: PV = $40,000×.38554 = $15,421.60 (table 2, n=10, i=10%) Sale of business: PV = $700,000×.38554 = $269,878 (table 2, n=10, i=10%) $348,420.80 + 35,921.20 + 27,991.20 + 21,205 + 15,421.60 + 269,878 = $718,837.80 He should not purchase the restaurant because the present value of all future returns is $718,837.80, which is less than the original purchase price of $800,000. P6-9 Option 1: PV= $180,000 Option 2: PVAD= $16,000×11.33560 = $181,369.60 (table 6, n=20, i=7%) Option 3: PVA= $50,000×7.02358 = $351,179 (table 4, n=10, i=7%) PV= $351,179×.54393 = $191,016.79 (table 2, n=9, i=7%) He should choose option 3, a 10-year annuity of $50,000 beginning at age 65. This option has the highest present value.
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This note was uploaded on 08/14/2011 for the course ACC 305 taught by Professor B.forde during the Spring '11 term at Ashford University.

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ACC305_week 3 discussions - Week 3 discussions DISSCUSSION...

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