On January 1 of this year. Shannon Company completed the following transactions

Question

On January 1 of this year. Shannon Company completed the following transactions tables provided.) assume a 10% annual interest rate): (E 1 P of 1. E 1 and PY of 1) Use the appropriate factor s from the 0 o a. Bought a delivery truck and agreed to pay $60,000 at the end of three years. b. Rented an office building and was given the option of paying $10,000 at the end of each of the next three years or paying $28,000 immediately. c. Established a savings account by depositing a single amount that will increase to $90,000 at the end of seven years. d. Decided to deposit a single sum in the bank that will provide 10 equal annual year-end payments of $40,000 to a retired employee (payments starting December 31 of this year) Required 1. What is the cost of the truck that should be recorded at the time of purchase? (Round your answer to nearest whole dollar.) f the $ 45,078 2. Which option for the office building results in the lowest present value? O Pay in single installment Pay in three installments 3. What single amount must be deposited in this account on January 1 of this year? (Round your answer to nearest whole dollar.) t to deposit 4. What single sum must be deposited in the bank on January 1 of this year? (Round your answer to nearest whole dollar.) t to deposit

Explanation / Answer

PART-1) Solution: $45,078.6

Working: 60,000 * 0.75131 = $45,078.6

PV (10%, 3Years)

PART-2) Solution: Pay in 3 installments

Working:

Payment in 3 installments: 10,000 * 2.48685= $24,869

PV (10%, 3Years)

Thus is less costly than paying in single installment of $28,000

PART-3) Solution: $46,184

Working:

90,000 * 0.51316= $46,184

PV (10%,7 Years)

PART-4) Solution: $245,783

Working:

10,000 * 6.14457 = $245,783

PV (10%, 10 Years)

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