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# Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-05

CLAUSSEN PURCHASE Estimated Cash Flows Yearly Cash Flow Years 1-5 \$ 70,000 Years 6-10 70,000 265,355 Years 11-20 70,000 395,515 245,583 End of Year 20 400,000 Maximum Purchase Price * Use the Present and Future Value Tables in the text or enter the proper formula rounded to 5 decimal places Time Period 5 5 5 10 5 5 10 Interest Rate 8% 10% 8% 12% 10% 8% 12%

PV

## 180,596 245,583 167,139 54,424

681,648
Correct!

Given Data P06-05: CLAUSSEN PURCHASE Anticipated cash flows per year for 20 years Selling price in 20 years Desired rate of return: Years 1-5 Years 6-10 Years 11-20 \$ \$ 70,000 400,000 8% 10% 12%

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-06 Part 1: JOHN JAMISON PV of \$1 factor = 30,000 60,000 = 0.5 *

Correct!

years)

## Part 2: JASMINE TEA COMPANY Annuity factor = \$28,700 \$7,000 = 4.10000 *

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

*

\$1,558
Correct!

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 Amount invested today Desired rate of return: Annually compounded interest Part 2: JASMINE TEA COMPANY Amount paid for merchandise Required annual payments Number of payments required Part 3: SAM ROBINSON Amount borrowed Number of installments Annual rate \$ 10,000 10 9% \$ \$ 28,700 7,000 5 \$ \$ 60,000 30,000 8%

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-07 THE LOWLIFE COMPANY Calculations Time PVA Period 250,000 4 250,000 5 250,000 250,000 3 Interest Rate 10% 8% 10% Annuity *Factor 3.16987 3.99271 4.86845 2.40184 Annuity Amount

## Part 1 Part 2 Part 3 Part 4

\$ \$ \$ \$

Calculation \$ 78,868 Payment \$ 62,614 Payment \$ 51,351 7 Payments \$ 104,087 12% Interest

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

Given Data P06-07: LOWLIFE COMPANY Amount of loan Part 1: Interest rate Number of payments Part 2: Interest rate Number of payments Part 3: Interest rate Annual payment amount Part 4: Number of payments Annual payment amount \$ 250,000 10% 4 8% 5 10% 51,351 3 104,087

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 06-14 HORIZON DISTRIBUTING COMPANY Pension Obligations as of December 31, 2011 Requirement 1: Date of Annual First Employee Payment Payment Tinkers \$ 20,000 12/31/2014 Evers \$ 25,000 12/31/2015 Chance \$ 30,000 12/31/2016 Time Periods 17 2 18 3 19 4 Interest Rate 11% 11% 11% *Deferred PV of Annuity Pension Factor Obligations 5.83627 \$ 116,725 5.25791 \$ 131,448 4.73684 \$ 142,105

## - Correct! - Correct! - Correct!

* Use the Present and Future Value Tables in the text or enter the proper formula rounded to 5 decimal places Pension Obligations as of December 31, 2014 Requirement 2: PV as of Employee 12/31/2011 Tinkers \$ 116,725 Evers \$ 131,448 Chance \$ 142,105 Total present value Amount of annual contribution: Time Period 3 3 3 Interest Rate 11% 11% 11% *FV FV Annuity as of Factor 12/31/2014 1.36763 \$ 159,637 1.36763 \$ 179,772 1.36763 \$ 194,347 \$ 533,756 3.70970 \$ 143,881

## - Correct! - Correct! - Correct! - Correct! - Correct!

11%

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

Given Data P06-14: HORIZON DISTRIBUTING COMPANY Life expectancy beyond retirement Interest rate Number of equal contributions 15 11% 3 Date of First Payment 12/31/2014 12/31/2015 12/31/2016

\$ \$ \$