s Window Help E\" Sat 11 50 AM CengagenNoW 1 Online teaching and leurning resour

Question

s Window Help E" Sat 11 50 AM CengagenNoW 1 Online teaching and leurning resource trom Cengage Leaming : Chapter 10 Assignment Save Exit Submit Assignment for Gradin 2Exercise 10-13 Check My Work Video Exercise 10-13 Deferred Payment months leter on October 2. Assume that Note: The following Table on present value may be used where appropriate to solve this preblem. What is the actual sale (purchase) price of the machine tool? Alligood Equipment Corporation sold a precision tool machine with computer controls to Kaut Corporation for $400,000 on January 2 and agreed to take payment nine the prevailing annual Interest rate for such a transaction is 16 percent compounded quarterly 44994 Hide Feedback basis, However in Tablies 1 and 2 in Appendix G, the far len The compounding period is in most cases columns refer nt to years but to period. This woning accommodates compound ng ??? of one year, and the interest rate is stated on an annuat p srp' court, ta than on in which the cempounding period is less then one year: To une the tables in these cases, you year and multiply the number of periods in one quarterly and bonds that pay interest semiamnually are cases year by the number of years. This procedure is the annual interest rate by the number of periods in the used whenever the corresponding period is less than one year for multiplying the number of years by 12 to use the tables. This method example, a monthly can be used with the present velue tables in Appendix C Check My Work 3 4

Explanation / Answer

FIRST STEP LETS SEE HOW TO CALCULATE, THE INTEREST RATE FACTOR:

YOU GOT INTEREST RATE 16% COMPOUNDED QUARTERLY

SO TO UNDERSTAND LETS SEE PER QUARTER INTEREST RATE =16%/4=4% PER QUARTER

NOW YOU HAVE 3 MONTHS IN A QUARTER , THEN YOUR PER MONTH RATE IS=4%/3=1.33% (ROUNDED OFF)MONTHLY

(NOTE:YOU CAN CHECK USING CALCULATOR 1.33*12=16%)

NOW USING YOUR TABLES TAKE YOUR PRESENT VALUE INTEREST FACTOR FOR 9 PERIODS FOR 1.33%

BUT YOU HAVE BEEN GIVEN PVIF(1%,9 PERIODS)=.914 AND PVIF(2%,9PERIODS)=.837

1.33% LIES BETWEEN THEM

SO LETS CALCULATE THAT PVIF

YOU CAN SEE THAT PVIF IS DECREASING WITH INCREASING INTEREST RATE

SO THE PVIF OF 1.33% WOUL BE LESS THAN THAT OF 1%

SO................. PVIF (1% 9 PERIODS)=0.914

.........................PVIF(2%,PERIODS)=0.837

DIFFERENCE....................................=0.077

SO FOR A DIFFERENCE OF 1% THE DIFFERENCE BETWEEN PVIF IS 0.077

SO FOR A DIFFERENCE OF .33% THE DIFFERENCE BETWEEN PVIF IS 0.025

SO PVIF (1.33%,9 PERIODS)=.914-.025=0.889

(NOTE : USING CALCULATOR YOU CAN VERIFY IT JUST DO THIS DIVIDE 1 BY 1.0133 AND PRESS

"= " BUTTON 9 TIMES IT WILL APPROXIMATELY GIVE THE SAME ANSWER)

SO NOW

FUTURE PAYMENT=$400,000

PVIF FACTOR=0.889

PRESENT VALUE=$355,600

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