# Chapter 6

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```					                                      Student Name:
Class:
Problem 06-05

CLAUSSEN PURCHASE
Estimated Cash Flows

Yearly      Time       Interest
Cash Flow    Period       Rate      *Factor    PVA   PV
Years 1-5           \$ 70,000           5
Years 6-10            70,000           5
5
Years 11-20           70,000          10
5
5
End of Year 20       400,000          10

Maximum Purchase Price

* Use the Present and Future Value Tables in Appendix 6
or enter the proper formula rounded to 5 decimal places
Given Data P06-05:

CLAUSSEN PURCHASE

Anticipated cash flows per year for 20 years    \$70,000
Selling price in 20 years                      \$400,000
Desired rate of return:
Years 1-5                                           8%
Years 6-10                                         10%
Years 11-20                                        12%
Student Name:
Class:
Problem 06-06

Part 1:
JOHN JAMISON

PV of \$1 factor =                    =                    *

*Present value of \$1: n=?, i=8% (from Table 2, n=approximately                   years)

Part 2:
JASMINE TEA COMPANY

Annuity factor =                                 =                  *

Present value of an ordinary annuity of \$1: n=5, i=? (from Table 4, i = approximately

Part 3:
SAM ROBINSON

Annuity amount =                     =                        =     Payment
*

Present value of an ordinary annuity of \$1: n=10, i=9% (from Table 4)
%)
Given Data P06-06:

Part 1:
JOHN JAMISON

Amount needed to accumulate          \$600,000
Amount invested today                 \$30,000
Desired rate of return:
Annually compounded interest               8%

Part 2:
JASMINE TEA COMPANY
Amount paid for merchandise           \$28,700
Required annual payments               \$7,000
Number of payments required                  5

Part 3:
SAM ROBINSON
Amount borrowed                       \$10,000
Number of installments                      10
Annual rate                                9%
Student Name:
Class:
Problem 06-07

THE LOWLIFE COMPANY
Calculations

Time      Interest   Annuity    Annuity
PVA    Period      Rate     *Factor    Amount Calculation
Part 1   \$250,000     4          10%                                   Payment
Part 2   \$250,000     5           8%                                   Payment
Part 3   \$250,000                10%              \$51,351              Payments
Part 4   \$250,000     3                          \$104,087              Interest

* Use the Present and Future Value Tables in Appendix 6
or enter the proper formula rounded to 5 decimal places
Given Data P06-07:

THE LOWLIFE COMPANY

Amount of loan           \$250,000
Part 1:
Interest rate               10%
Number of payments            4
Part 2:
Interest rate                8%
Number of payments            5
Part 3:
Interest rate                10%
Annual payment amount    \$51,351
Part 4:
Number of payments             3
Annual payment amount   \$104,087
Student Name:
Class:
Problem 06-14

HORIZON DISTRIBUTING COMPANY
Pension Obligations
as of December 31, 2006

Requirement 1:
Date of                                    *Deferred       PV of
Annual    First              Time      Interest      Annuity       Pension
Employee   Payment Payment             Periods       Rate        Factor       Obligations
Tinkers     \$20,000 12/31/2009         17      2      11%
Evers       \$25,000 12/31/2010         18      3      11%
Chance      \$30,000 12/31/2011         19      4      11%

* Use the Present and Future Value Tables in Appendix 6
or enter the proper formula rounded to 5 decimal places

Pension Obligations as of
December 31, 2006
Requirement 2:
PV                                     *FV             FV
as of         Time       Interest      Annuity         as of
Employee 12/31/2003          Period       Rate        Factor       12/31/2006
Tinkers                      3            11%
Evers                        3            11%
Chance                       3            11%
Total present value

Amount of annual contribution:            3           11%

* Use the Present and Future Value Tables in Appendix 6
or enter the proper formula rounded to 5 decimal places
Given Data P06-14:

HORIZON DISTRIBUTING COMPANY

Life expectancy beyond retirement          15
Interest rate                            11%
Number of equal contributions               3

Date of
Annual       First
Employee                 Payment     Payment
Tinkers                  \$20,000    12/31/2009
Evers                    \$25,000    12/31/2010
Chance                   \$30,000    12/31/2011

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