Answer each of the following independent questions.
Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $21,000 cash immediately and a six-period annuity of $7,700 beginning one year from today, or (3) a six-period annuity of $13,300 beginning one year from today. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
1. assuming interest rate of 7% determine PV value
â annunity payment....pv annuity....+ immediate cash....= PV OP
op 1 ? ? ? ?
op 2 ? ? ? ?
âop 3 ? ? ? ?
â2. which option should alex choose?
| Answer each of the following independent questions. |
| Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $21,000 cash immediately and a six-period annuity of $7,700 beginning one year from today, or (3) a six-period annuity of $13,300 beginning one year from today. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. assuming interest rate of 7% determine PV value â annunity payment....pv annuity....+ immediate cash....= PV OP op 1 ? ? ? ? op 2 ? ? ? ? âop 3 ? ? ? ? â2. which option should alex choose? |
Related questions
Problem 24-2A Analysis and computation of payback period, accounting rate of return, and net present value LO P1, P2, P3
[The following information applies to the questions displayed below.]
| Most Company has an opportunity to invest in one of two new projects. Project Y requires a $325,000 investment for new machinery with a six-year life and no salvage value. Project Z requires a $325,000 investment for new machinery with a five-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. (FV of $1, PV of $1, FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tables provided.) |
| Project Y | Project Z | |||||||||
| Sales | $ | 390,000 | $ | 312,000 | ||||||
| Expenses | ||||||||||
| Direct materials | 54,600 | 39,000 | ||||||||
| Direct labor | 78,000 | 46,800 | ||||||||
| Overhead including depreciation | 140,400 | 140,400 | ||||||||
| Selling and administrative expenses | 28,000 | 28,000 | ||||||||
| Total expenses | 301,000 | 254,200 | ||||||||
| Pretax income | 89,000 | 57,800 | ||||||||
| Income taxes (28%) | 24,920 | 16,184 | ||||||||
| Net income | $ | 64,080 | $ | 41,616 | ||||||
Problem 24-2A Part 1
| Required: | |
| 1. | Compute each projectâs annual expected net cash flows. |
Problem 24-2A Part 2
| 2. | Determine each projectâs payback period. |
Problem 24-2A Part 3
| 3. | Compute each projectâs accounting rate of return. |
Problem 24-2A Part 4
| 4. | Determine each projectâs net present value using 8% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.) |
Problem 15-15 Sales-type lease; bargain purchase option exercisable before lease term ends; lessor and lessee [LO15-3, 15-5, 15-6, 15-7, 15-8]
| Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of financing. On September 30, 2013, the company leased a delivery truck to a local florist, Anything Grows. |
| The lease agreement specified quarterly payments of $5,500 beginning September 30, 2013, the inception of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2016 (three-year lease term). The florist had the option to purchase the truck on September 29, 2015, for $11,000 when it was expected to have a residual value of $18,000. The estimated useful life of the truck is four years. Mid-South Auto Leasingâs quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $41,000 for the truck. Both companies use straight-line depreciation. Anything Growsâ incremental interest rate is 12%. |
| Hint: A lease term ends for accounting purposes when an option becomes exercisable if itâs expected to be exercised (i.e., a BPO). (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) |
| Required: | |
| 1. | Calculate the amount of dealerâs profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the inception of the lease, payments represent an annuity due.) |
| 2. | Prepare the appropriate entries for Anything Grows and Mid-South on September 30, 2013. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) |
| 3. | Prepare an amortization schedule(s) describing the pattern of interest expense for Anything Grows and interest revenue for Mid-South Auto Leasing over the lease term. (Enter your answers in whole dollars.) |
| 4. | Prepare the appropriate entries for Anything Grows and Mid-South Auto Leasing on December 31, 2013.(If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) |
| 5. | Prepare the appropriate entries for Anything Grows and Mid-South on September 29, 2015, assuming the bargain purchase option was exercised on that date. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answers in whole dollars.) |
