When Pacific Inc. bid for a project with the government, the company was offered the following two payment options: Option (A): A payment of $830,000 at the end of 3 years, which is the scheduled completion time for the project. Option (B): $200,000 paid upfront at the beginning of the project and the balance payment in 3 years If the two payments are financially equivalent and the interest rate is 4.98% compounded semi-annually, calculate the balance payment offered in Option(B). *round to the nearest cent

When Pacific Inc. bid for a project with the government, the company was offered the following two payment options: Option (A): A payment of $830,000 at the end of 3 years, which is the scheduled completion time for the project. Option (B): $200,000 paid upfront at the beginning of the project and the balance payment in 3 years If the two payments are financially equivalent and the interest rate is 4.98% compounded semi-annually, calculate the balance payment offered in Option(B). *round to the nearest cent

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 41P

See similar textbooks

Similar questions

Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of 5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. The present value of an ordinary annuity of 1 at 15% for 5 periods is 3.35. The future amount of an ordinary annuity of 1 at 15% for 5 periods is 6.74. The present value of 1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine? a. 12,500 b. 16,750 c. 25,000 d. 33,700
Using the information provided, what transaction represents the best application of the present value of an annuity due of $1? A. Falcon Products leases an office building for 8 years with annual lease payments of $100,000 to be made at the beginning of each year. B. Compass, Inc., signs a note of $32,000, which requires the company to pay back the principal plus interest in four years. C. Bahwat Company plans to deposit a lump sum of $100.000 for the construction of a solar farm In 4 years. D. NYC Industries leases a car for 4 yearly annual lease payments of $12,000, where payments are made at the end of each year.
An obligation can be settled by making a payment of $16,000 now and a final payment of $30,000 in 3 years. Alternatively, the obligation can be settled by payments of $2500 at the end of every three months for four years. Interest is 12% compounded quarterly. Determine the net present value at 11%. Which project is preferable according to the net present value criterion? A. Choice 2 is preferable B. Neither of the choices are good C. Both choices are the same D. Choice 1 is preferable
A certain piece of equipment has a list price of $120,000. The manufacturer offers two options for paying for the equipment. Option A: An initial down payment of $20,000 plus additional payments of $20,000 per year at the end of each of the next six years.Option B: A single payment of $108,000 at the time of purchase (i.e., a 10% discount for paying in cash).(a) What annual interest rate would you be paying if you selected Option A? (b) What is the implicit annual interest rate associated with the financing offered in Option A when compared against the discount offered in Option B?
Dhofar water is installing new equipment at a cost of 140000 OMR. Expected cash flows from this project over the next three years will be 95000 OMR , 80000 OMR and 65000 OMR. The company's discount rate for such projects is 10 percent. What is the project's discounted payback period? Select one: a. 1.81 years O b. None of these Oc. 1.44 years Od. 1.63 years O e. 2.82 years
Keystone Corporation is looking to purchase a building costing $1,000,000 by paying $200,000 cash on the purchase date and agreeing to make annual payments for the next ten years. The first payment is due one year after the purchase date. Keystone's incremental borrowing rate is 10%. Each of the annual payments is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use the appropriate factor(s) from the tables provided.
Consider a project with an initial investment of $300,000, which must befinanced at an interest rate of l2% per year. Assuming that the required repayment period is six years, determine the repayment schedule by identifying the principal as well as the interest payments for each of the following repayment methods:(a) Equal repayment of the principal: $50,000 principal payment each year(b) Equal re payment of the interest: $36,000 int erest payment each year(c) Equal an nual installments: $72,968 each year
Consider a project with an initial investment of $300,000, which must befinanced at an interest rate of l2% per year. Assuming that the required repayment period is six years, determine the repayment schedule by identifying the principal as well as the interest payments for each of the following repayment methods:(a) Equal repayment of the principal: $50,000 principal payment each year(b) Equal repayment of the interest: $36,000 interest payment each year(c) Equal annual installments: $72,968 each year
4. Acompany has to replace a present facility after 15 years at an outlay of ETB. 5,00,000. It plans to deposit an equal amount at the end of every year for the next 15 years at an interest rate of 18% compounded annually. Find the equivalent amount that must be deposited at the end of every year for the next 15 years. 5. Before evaluating the economic merits of a proposed investment, the XYZ Corporation insists that its engineers develop a cash-flow diagram of the proposal. An investment of
03) In order to replace a present facility, a company is to deposit $11000 at the end of every year at an interest rate of 8 % compounded annually. Find: a. The future total amount that will be available for the company after 10 years to purchase the new facility. b. The total amount (initial+ interest amount) at the end of each year until the last year of deposition.
L& T Corporation is considering an investment proposal in which a working capital investment of $15,000 would be required. The investment would provide cash inflows of $2,000 per year for six years. The working capital would be released for use elsewhere when the project is completed. If the company's discount rate is 10%, the investment's net present value is closest to: The PV factor for $1 annuity for six years at 10% is 4.355 and PV of $1 over 6 years at 10% is 0.564 A. $6,290 B. $(6,290) C. $3,000 D. $2,170
An investment proposal calls for $223,130 payment now and a second $259,455 7 years from now. The investment is for a project with perpetual life. The annual interest rate is 6%. What is the approximate capitalized cost?