Question

# question 1 corporation bought a new machine and agreed to pay for it in equal annual...

question 1

corporation bought a new machine and agreed to pay for it in equal annual instalments of \$5370 at the end of each of the next ten years. Assuming that a prevailing interest rate of 6% applies to this contract, how much should corporation record as the cost of machine?

question 2

corporation purchased a special tractor on december 31 2017. The purchase agreement stipulated corporation to pay \$20940 at the time of purchase and %5320 at the end of the next 8 years. The tractor should be recorded on dec 31 2017 at what amount assuming appropriate interest rate of 12%?

question 3

corporation wants to withdraw \$122920 (including principal) from an investment fund at the end of each year for 9 years. What should be the required initial investment at the beginning of the first year if the funds earn 11%?

Question 1.

 The cost of the machine to be recorded 39524 *

Working:

 Annual payment 5370 Period - years 10 Rate of interest 6% Discounting factor for an 7.3601 annuity for 10 period @6% Present value of the annual payment 39523.74 *

Question 2.

 Cost of the tractor to be recorded * 47368

Working:

 Annual payment 5320 Period - years 8 Rate of interest 12% Discounting factor for an 4.9676 annuity for 8 periods @12% Present value of the annual payment 26428 Initial payment 20940 Total value of the tractor * 47368

Question 3. Initial investment to be made = \$7,818.00

Formula for the future value of an annuity due is

FV = (1+r) X P X (((1+r)^n - 1)/r)

Here FV = 122,920 , r = 11% and n = 9 P = the annual amount to be saved.

Sloving this we get P = \$7,818.

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