Your company will generate $62,000 in annual revenue each year for the next eigh

Question

Your company will generate $62,000 in annual revenue each year for the next eight years from a new information database. If the appropriate interest rate is 825 percent, what is the present value of the savings? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) You are considering an annuity which costs $97,767 today. The annuity pays $6,400 a year. The rate of return is 6 percent. What is the length of the annuity time period? (Do not round intermediate calculations.) 12.70 years 42.62 years 143.65 years 15.28 years 21.31 years You just paid $356,000 for a policy that will pay you and your heirs $12.800 a year forever. What rate of return are you earning on this policy? 3.87 percent 3.47 percent 3.60 percent 3.35 percent 2.00 percent

Explanation / Answer

1) 356,000 = 12,800/r

r (rate of return) = 12800/356000 = 3.60%

2) 97,767 = 6400*PVIFA(6%,N)

PVIFA(6%,N) = 97,767/6400 = 15.276

[1-(1+.06)^-n]/.06 = 15.27609

1.06^-n = 1-15.27609*.06 = .0834

1.06^n = 11.98543

n = (log11.98543)/(log1.06) = 42.62 years

3) PV = 62,000*PVIFA(8.25%,8) = $62000*5.6925 = $352935

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