Chapter 6: Q10Q (page 301)
Question: Kehoe, Inc. owes $40,000 to Ritter Company. How much would Kehoe have to pay each year if the debt is retired through four equal payments (made at the end of the year), given an interest rate on the debt of 12%? (Round to two decimal places.)
The amount paid each year is$13169
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Candice Willis will invest \(30,000 today. She needs \)150,000 in 21 years. What annual interest rate must she earn?
Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 8%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat?
Question: Explain how the future value of an ordinary annuity interest table is converted to the future value of an annuity due interest table.
Using the appropriate interest table, provide the solution to each of the following four questions by computing the unknowns.
(a) What is the amount of the payments that Ned Winslow must make at the end of each of 8 years to accumulate a fund of \(90,000 by the end of the eighth year, if the fund earns 8% interest, compounded annually?
(b) Robert Hitchcock is 40 years old today and he wishes to accumulate \)500,000 by his sixty-fifth birthday so he can retire to his summer place on Lake Hopatcong. He wishes to accumulate this amount by making equal deposits on his fortieth through his sixty-fourth birthday. What annual deposit must Robert make if the fund will earn 8% interest compounded annually?
(c) Diane Ross has \(20,000 to invest today at 9% to pay a debt of \)47,347. How many years will it take her to accumulate enough to liquidate the debt?
(d) Cindy Houston has a \(27,600 debt that she wishes to repay 4 years from today; she has \)19,553 that she intends to invest for the 4 years. What rate of interest will she need to earn annually in order to accumulate enough to pay the debt?
Ellison Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor’s punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be \(1,000 per year for the first 5 years, \)2,000 per year for the next 10 years, and \(3,000 per year for the last 5 years. Following is each vendor’s sales package.
Vendor A: \)55,000 cash at time of delivery and 10 year-end payments of \(18,000 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of \)10,000.
Vendor B: Forty semiannual payments of \(9,500 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge.
Vendor C: Full cash price of \)150,000 will be due upon delivery.
Instructions Assuming that both Vendors A and B will be able to perform the required year-end maintenance, Ellison’s cost of funds is 10%, and the machine will be purchased on January 1, from which vendor should the press be purchased?
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