Acc550:Week 4 Assignment

Week 4: Assignment

E6-4 (Computation of Future Values and Present Values)

Using the appropriate interest table, answer the following questions. (Each case is independent of the others).

• (a) What is the future value of 20 periodic payments of $5,000 each made at the beginning of each period and compounded at 8%?

(a) Future value of an ordinary

annuity of $5,000 a period

for 20 periods at 8%

$228,809.80

($5,000 X 45.76196)

Factor (1 + .08) X 1.08

Future value of an annuity due of $5,000 a period at 8%

$247,114.58

• (b) What is the present value of $2,500 to be received at the beginning of each of 30 periods, discounted at 10% compound interest?

(b) Present value of an ordinary annuity of $2,500 for 30 periods at 10% $23,567.28 ($2,500 X 9.42691)

Factor (1 + .10) X 1.10

Present value of annuity due of $2,500 for 30 periods at 10% $25,924.00

• (c) What is the future value of 15 deposits of $2,000 each made at the beginning of each period and compounded at 10%? (Future value as of the end of the fifteenth period.)

(c) Future value of an ordinary annuity of $2,000 a period for 15 periods at 10% $63,544.96 ($2,000 X 31.77248)

Factor (1 + 10) X 1.10

Future value of an annuity due of $2,000 a period for 15 periods at 10%

$69,899.46

• (d) What is the present value of six receipts of $3,000 each received at the beginning of each period, discounted at 9% compounded interest?

Answer:

PV=Amount per period*PV of Annuity Due Factor (9%, 6 Periods)

= 3000*4.88965 = 14668.95

P6-6 (Purchase Price of a Business)

Instructions: Dick Button has offered to buy Stacy’s vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept?

Using the formula PV–OA = R (PVF –OAn, i) we will calculate the PV – OA of all the periods mentioned on the problem:

(1- 5 years)

PV–OA = R (PVF–OAn, i)

PV–OA = ($39,000) (PVF–OAn5,...