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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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