Question

You are the financial manager for a recreation center that has signed an option to purchase...

You are the financial manager for a recreation center that has signed an option to purchase new elliptical machines for $22,500 in two years. If you have an investment opportunity that guarantees 7% interest, how much must you invest to have the necessary funds to purchase the elliptical machines?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Present value of cost of machine at 7% rate of return = Cost of machine in 2 years * Discount factor
= $       22,500 * 0.873439
= $ 19,652.37
So, Required investment should be $ 19,652.37
Working:
Discount fcator = (1+i)^-n Where,
= (1+0.07)^-2 i 7%
= 0.873439 n 2
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are the financial manager of a large company and you must recommend the best investment...
You are the financial manager of a large company and you must recommend the best investment to the board of directors. 1- (30 points) If the firm wants to invest 100,000 €, which of the following options is the most interesting one: a) To invest in a bank account that offers an annual simple interest rate of 7%, for 10 years b) To invest in a bank account that offers an annual compound interest rate of 6%, for 10 years...
As a financial analyst at Goldman Sachs, you are evaluating an option to purchase an equipment...
As a financial analyst at Goldman Sachs, you are evaluating an option to purchase an equipment to expand the product line for the company. There are two machines meeting the company's investment criteria, Machine H and Machine L. Machine H costs more than Machine L but has the flexibility to be modified if the demand for the product is low while machine L cannot be modified. The following is the financial information about these two machines. The project with Machine...
a) At the end of five years you wish to purchase a car for $25,000. You...
a) At the end of five years you wish to purchase a car for $25,000. You can invest your money at the rate of 5% compounded annually. How much money must you deposit in your investment account today in order to have enough funds to purchase your car? Interest rate - Actual amount of the deposit is: Number of periods - Table used - Factor from table used - b) You want to buy a business with an annual cash...
Suppose you are a financial manager and you have the following investment opportunities: Project Investment (in...
Suppose you are a financial manager and you have the following investment opportunities: Project Investment (in $1,000) NPV (in $1,000) 1 500 100 2 200 -4 3 125 -7 4 50 50 5 250 60 Which of the following projects should you pursue if you have only $700,000 allocated for capital expenditures? How much does the budget limit cost the company in terms of forgone NPV? The opportunity cost of capital for each project is 15%.
A car salesperson offers you two alternative payment option: - Buy new car for $25,000 cash...
A car salesperson offers you two alternative payment option: - Buy new car for $25,000 cash today, or - pay $5000 today and $22,500 two years from now If the interest rate in the economy is 7%, What is the present value of the first option? What is the present value of the second option? Which option is preferable?
6. Assume you have an option to purchase an investment that will provide a cash payment...
6. Assume you have an option to purchase an investment that will provide a cash payment of $20,000 in 10 years. If you believe the appropriate rate of return is 12% compounded semiannually, how much should you pay for this today? 7. You plan on making monthly payments of $50 to pay off a credit card that you just charged $1,000 to. If the interest rate is 24% compounded monthly, how many months will it take you to pay off...
The financial manager of Dizzy Inc. is trying to decide whether or not to purchase a...
The financial manager of Dizzy Inc. is trying to decide whether or not to purchase a new machine. Dizzy Inc. uses a discount rate of 10% to evaluate projects such as this one and has a policy of accepting projects that payback within 3 years. If the investment is undertaken, the following cashflows will be generated. Year Cash Flow (€) 0 -200,000 1 50,000 2 60,000 3 70,000 4 200,000   (i)         Calculate the Net Present Value, the payback period, the...
Thornton Corporation operates three investment centers. The following financial statements apply to the investment center named...
Thornton Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division. BOWMAN DIVISION Income Statement For the Year Ended December 31, Year 2 Sales revenue $ 106,880 Cost of goods sold 59,875 Gross margin 47,005 Operating expenses Selling expenses (2,720 ) Depreciation expense (4,055 ) Operating income 40,230 Nonoperating item Loss on sale of land (4,200 ) Net income $ 36,030 BOWMAN DIVISION Balance Sheet As of December 31, Year 2 Assets Cash...
Rundle Corporation operates three investment centers. The following financial statements apply to the investment center named...
Rundle Corporation operates three investment centers. The following financial statements apply to the investment center named Bowman Division: BOWMAN DIVISION Income Statement For the Year Ended December 31, 2018 Sales revenue $ 107,380 Cost of goods sold 59,375 Gross margin 48,005 Operating expenses Selling expenses (2,670 ) Depreciation expense (4,175 ) Operating income 41,160 Nonoperating item Loss of sale of land (3,500 ) Net income $ 37,660 BOWMAN DIVISION Balance Sheet As of December 31, 2018 Assets Cash $ 12,602...
You were recently appointed financial manager for Speedgro Limited and are now requested by the board...
You were recently appointed financial manager for Speedgro Limited and are now requested by the board of directors to invest an amount of R5million taking the risk associated with the investment alternatives into account The chairman of the board feels that the funds should be invested in government bonds. The interest earned on government bonds are directly related to the state of the economy. If a recession sets in the interest rate is estimated at 20% per year for a...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT