1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Yakvenalex [24]
3 years ago
13

A local bank advertises the following deal: "Pay us $100 at the end of each year for 10 years and then we will pay you (or your

beneficiaries) $100 at the end of each year forever." a. Calculate the present value of your payments to the bank if the interest rate is 5.50%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the present value of a $100 perpetuity deferred for 10 years if the interest rate is 5.50%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
2 answers:
Stels [109]3 years ago
7 0

Answer:

Part A. $754

Part B. $1064.42

Explanation:

Part A. The present value of payments can be calculated using the annuity formula which is as under:

Present Value = Cash flow * Annuity Factor

Here

Annual Payments = $100

Number of periods = 10

Interest rate = 5.5%

Annuity Factor = [1 - (1+i)^-n]  / i  = [1 - (1 + 5.5%)^-10] / 5.5% = 7.538  

Present Value = $100 * 7.538 = $754

Part B. The present value of $100 deferred perpetuity for 10 years can be calculated in two steps:

Step 1. Calculate the perpetuity at the year 10

Perpetuity = Cash flow / Discount Rate

Perpetuity = $100 / 5.5% = 1818.182

Step 2. Now discount this amount back to year zero.

Deferred Annuity = $1818.182 / (1.055)^10 = $1064.42

The value received is above the annual payments which means it is a good deal.

faltersainse [42]3 years ago
6 0

Answer:

1. $753.76

2. $1064.42

3.yes

Explanation:

Interest rate = 5.50% = 0.055

Period = 10years

Present value (PV) =

The present value of cash flow Is calculated by:

PV = 100/0.055*(1- (1/(1 + 0.055)^10))

PV = 100/0.055 × (1 - (1 / 1.055^10))

PV = 1818.18181818181818 × (1 - 0.58543057942760689)

PV = 753.762582858896555

2.) Present value of perpetuity:

100/(1 + 0.055)^11 × [1/(1 - (1/1 + 0.055))]

[100/1.055^11] × [1/(1 - 0.947867298]

55.4910501827115539 × 19.181817

= 1064.4192

3.) Yes, as it yield a greater value

You might be interested in
PLEASE HELP ME VERY URGENT
Jet001 [13]
The correct answer is C
8 0
3 years ago
In order to provide more complete information, u.s. gaap allows that any significant noncash investing and financing activities
vampirchik [111]

It is reported as foot notes  in cashflow statement or in the notes of financial statements.

When an income statement is converted to cash flows from operational operations, noncash items like as depreciation and nonoperating profits and losses are not included. Non-cash investing and financing entails making an investment or purchase using financial instruments other than cash.

The Generally Accepted Accounting Principles (GAAP) are a collection of generally observed financial reporting accounting standards and regulations. The four main constraints of GAAP are objectivity, the materiality, the consistency, and the prudence.

Companies are required by both IFRS and US GAAP to declare any substantial non-cash investment and financing operations, either as a footnote at the bottom of the statement of the cash flows or in  notes to the financial statements.

Therefore, the answer is the bottom of the statement of  the cash flows or in the notes to  financial statements.

To know more about U.S Gaap click here:

brainly.com/question/17327177

#SPJ4

6 0
2 years ago
Which of the following statements is correct? Revenue is recognized at the time of shipment when goods are shipped FOB destinati
allochka39001 [22]

Answer:

The correct answer to the following question will be Option C.

Explanation:

  • The buyers, as well as sellers, must negotiate an understanding as to who is capable of paying certain transport costs and also who, whenever the item is delivered, assumes the default risk throughout transportation.
  • A seller reports compensation whenever the purchaser has the transition of titles as well as ownership uncertainties.

The other three options are not related to a certain scenario. So that option C is the right answer.

7 0
3 years ago
What happens to birds that don’t get sold in the pet store?
Sergio [31]
They get sold to another shop with higher demand, or become breeding stock
6 0
3 years ago
On January 1, Year 5, customers owed Eagle $40,000. On December 31, Year 5, customers owed Eagle $30,000. Eagle uses the direct
irinina [24]

Answer:

$200,000

Explanation:

The computation of the net revenue is shown below:

= Cash sales gross - Returns and allowances + credit sales gross - discounts + beginning balance of account receivable - ending balance of account receivable  

= $80,000 - $4,000 + $120,000 - $6,000 + $40,000 - $30,000

= $200,000

We simply first compute the net cash sales after considering the returns and allowances, and net credit sales after considering the discounts, and deduct the ending balance of account receivable

3 0
3 years ago
Other questions:
  • A decrease in the supply of dollars on the foreign exchange market, all else equal, will result in:
    15·1 answer
  • What good or services is “AMAZON” KNOW FOR
    15·1 answer
  • When an administrative assistant reorders office supplies for a business, placing the same order as last month without checking
    7·1 answer
  • After having problems with her Mitsubishi car, sandra salazar had santa Fe Mitsubishi install a used LO1 motor in it. when she p
    9·1 answer
  • A manufacturer sells a product for $5 per unit to a wholesaler who sells it at a markup of 60%, based on manufacturer selling pr
    11·1 answer
  • The same process that applies to everyday communication applies to communication in the workplace. Understanding the steps in th
    9·1 answer
  • SOMEONE HELP PLEASEEE ME AND MY MOM HAS BEEN ON THIS QUESTION FOR AN HOUR
    12·2 answers
  • Ann is trying to decide which one of two job offers she will accept. Several items are presented below: Job Offer A(1)Base Salar
    10·1 answer
  • 1. To begin to understand stocks, we have to know what companies sell stock. Define: What is a corporation?
    8·1 answer
  • The shape of the production possibilities curve
    10·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!