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Chapter 13A - Solution Manual

# Chapter 13A - Solution Manual - Chapter 13A The Concept of...

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Chapter 13A The Concept of Present Value Appendix 13A The Concept of Present Value Exercise 13A-1  (10 minutes) a. From Exhibit 13B-1, the present value factor for 8% for three  periods is 0.794. Therefore, the present value of the investment in  the garage is \$317,600 (=\$400,000  ×  0.794). If \$317,600 is  invested now at 8%, in three years it will have grown to \$400,000. b. From Exhibit 13B-1, the present value factor for 12% for three  periods is 0.712. Therefore, the present value of the investment in  the garage is \$284,800 (=\$400,000  ×  0.712). If \$284,800 is  invested now at 12%, in three years it will have grown to \$400,000. Exercise 13A-2  (10 minutes) You should prefer option (a) because its present value is the largest: Option a: \$50,000  ×  1.000 = \$50,000. Option b: \$75,000  ×  0.507 = \$38,025. (From Exhibit 13B-1) Option c: \$12,000  ×  4.111 = \$49,332. (From Exhibit 13B-2) Exercise 13A-3  (10 minutes) a. From Exhibit 13B-1, the factor for 6% for 3 periods is 0.840.

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