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Chapter 6: Question 16BE (page 304)
Zach Taylor is settling a \(20,000 loan due today by making 6 equal annual payments of \)4,727.53. Determine the interest rate on this loan, if the payments begin one year after the loan is signed.
If the payments begin one year after the loan is signed, the interest rate will be 11%.
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(Analysis of Alternatives) Julia Baker died, leaving to her husband Brent an insurance policy contract that provides that the beneficiary (Brent) can choose any one of the following four options. (a) \(55,000 immediate cash. (b) \)4,000 every 3 months payable at the end of each quarter for 5 years. (c) \(18,000 immediate cash and \)1,800 every 3 months for 10 years, payable at the beginning of each 3-month period. (d) \(4,000 every 3 months for 3 years and \)1,500 each quarter for the following 25 quarters, all payments payable at the end of each quarter.
Instructions If money is worth 2陆% per quarter, compounded quarterly, which option would you recommend that Brent exercise?
Killroy Company owns a trade name that was purchased in an acquisition of McClellan Company. The trade name has a book value of \(3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Killroy must estimate the fair value of the trade name. (You will learn more about intangible asset impairments in Chapter 12.) It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Killroy鈥檚 estimate of annual cash flows over the next 8 years. The trade name is assumed to have no salvage value after the 8 years. (Assume the cash flows occur at the end of each year.) Probability Cash Flow Estimate Assessment \)380,000 20% 630,000 50% 750,000 30% Instructions (a) What is the estimated fair value of the trade name? Killroy determines that the appropriate discount rate for this estimation is 8%. (b) Is the estimate developed for part (a) a Level 1 or Level 3 fair value estimate? Explain.
Using the appropriate interest table, answer the following questions. (Each case is independent of the others). (a) What is the future value of 20 periodic payments of \(4,000 each made at the beginning of each period and compounded at 8%? (b) What is the present value of \)2,500 to be received at the beginning of each of 30 periods, discounted at 5% compound interest? (c) What is the future value of 15 deposits of \(2,000 each made at the beginning of each period and compounded at 10%? (Future value as of the end of the fifteenth period.) (d) What is the present value of six receipts of \)1,000 each received at the beginning of each period, discounted at 9% compounded interest?
Clarence Weatherspoon, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $20,000 per year on June 30, beginning in 2021 and continuing through 2024. To develop this fund, Clarence intends to make equal contributions on June 30 of each of the years 2017鈥�2020. Instructions
(a) How much must the balance of the fund equal on June 30, 2020, in order for Clarence to satisfy his objective?
(b) What are each of Clarence鈥檚 contributions to the fund?
Maria Alvarez is investing $300,000 in a fund that earns 4% interest compounded annually. What equal amounts can Maria withdraw at the end of each of the next 20 years?
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