Answer:
a. The cost of the truck that should be recorded at the time of purchase is:
= $48,741.
b. The option of paying $11,400 annually for 3 years results in a PV of $29,379, which is lower than $30,000 paid immediately.
c. The single amount that must be deposited in this account on January 1 of this year is:
= $54,148.
d. The single sum that must be deposited in the bank on January 1 of this year to provide 8 equal annual year-end payments of $41,400 to a retired employee is:
= $237,910.85
Explanation:
a) Data and Calculations:
a. Bought a delivery truck and agreed to pay $61,400 at the end of three years.
From an online financial calculator:
(# of periods) 3
I/Y (Interest per year) 8
PMT (Periodic Payment) 0
FV (Future Value) $61400
Results
PV = $48,741.30
Total Interest $12,658.70
b. Rented an office building and was given the option of paying $11,400 at the end of each of the next three years or paying $30,000 immediately.
From an online financial calculator:
N (# of periods) 3
I/Y (Interest per year) 8
PMT (Periodic Payment) $11,400
FV (Future Value) 0
Results
PV = $29,378.91
Sum of all periodic payments $34,200.00
Total Interest $4,821.09
c. Established a savings account by depositing a single amount that will increase to $92,800 at the end of seven years.
From an online financial calculator:
N (# of periods) 7
I/Y (Interest per year) 8
PMT (Periodic Payment) 0
FV (Future Value) $92,800
Results
PV = $54,147.91
Total Interest $38,652.09
d. Decided to deposit a single sum in the bank that will provide 8 equal annual year-end payments of $41,400 to a retired employee (payments starting December 31 of this year.
From an online financial calculator:
N (# of periods) 8
I/Y (Interest per year) 8
PMT (Periodic Payment) $41,400
FV (Future Value) 0
Results
PV = $237,910.85
Sum of all periodic payments $331,200.00
Total Interest $93,289.15
