Tables 1: http://lectures.mhhe.com/connect/0078111048/Appendix B/exhibitb-9.jpg

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Tables 1:

http://lectures.mhhe.com/connect/0078111048/Appendix B/exhibitb-9.jpg

http://lectures.mhhe.com/connect/0078111048/Appendix B/exhibitb-7.jpg

Use Table PV-1 (in Exhibit B-7) and Table PV-2 (in Exhibit B-9) Determine the present value of 515,000 to be paid annually for 10 years, discounted at an annual rate of 6 percent. Payments are to occur at the end of each year. (Round your PV factor to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.) Determine the present value $9,200 to be received today, assuming that the money will be invested in a two-year certificate of deposit earning 8 percent annually. (Round your PV factor to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.) Determine the present value of $300 to be paid monthly for 36 months, with an additional "balloon payment" of S 12,000 due at the end of the thirty-sixth month, discounted at a monthly interest rate of YA percent. The first payment is to be one month from today. (Round your PV factor to 3 decimal places, intermediate and final answer to the nearest dollar amount. Omit the "$" sign in your response.) Determine the present value of $25,000 to be received annually for the first three years, followed by $15,000 to be received annually for the next two years (total of five years in which collections are received), discounted at an annual rate of 8 percent. Assume collections occur at year-end. (Round your PV factor to 3 decimal places and final answer to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

a. Determine the present value of $15,000 to be paid annually for 10 years, discounted at an annual rate of 6 percent. Payments are to occur at the end of each year. We have PMT = 15000, nper = 10, Rate =6% So Present value = PV(Rate,nper,pmt) = PV(6%,10,15000) =$110,401 Or PV = 15000*PVIFA(10,6%) = 15000* 7.360 = $110,401 b. Determine the present value $9,200 to be received today, assuming that the money will be invested in a two-year certificate of deposit earning 8 percent annually. PV = 9200*(1+8%)^2/(1+8%)^2 = $9200 c. Determine the present value of $300 to be paid monthly for 36 months, with an additional "balloon payment" of $12,000 due at the end of the thirty-sixth month, discounted at a monthly interest rate of 1½ percent. The first payment is to be one month from today. We have PMT = 300, nper = 36, Rate =1.5% So Present value = PV(Rate,nper,pmt) = PV(1.5%,36,300) = $8,298 or PV = 300*PVIFA(1.5%,36) = 300* 27.661 = 8298 PV of Balllon payment = FV/(1+i)^n = 12000/(1+1.5%)^36 = $7,021 So PV = 8298 + $7,021 = $15,319 d. Determine the present value of $25,000 to be received annually for the first three years, followed by $15,000 to be received annually for the next two years (total of five years in which collections are received), discounted at an annual rate of 8 percent. Assume collections occur at year-end. This has 2 parts. We first find PV of 3 Yr. Then we find PV of nex 2 yr at Y3 & then Disc it to PV at Y0. We have PMT = 25000, nper = 3, Rate =8% So Present value = PV(Rate,nper,pmt) = PV(8%,3,25000) = $64,427 or PV = 25000*PVIFA(8%,3) = 25000* 2.577 = 64427 ..(1) We have PMT = 15000, nper = 2, Rate =8% So Present value = PV(Rate,nper,pmt) = PV(8%,2,15000) = $26,749 or PV at Y3 = 15000*PVIFA(8%,2) = 15000* 1.783 = 26749 So PV of $26,749 at Y0 = $26,749/(1+8%)^3 = $21,234 ...(2) So PV = (1) + (2) = $85,662

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