Question

In: Accounting

Leon Bowie is trying to determine the amount to set aside so that he will have...

Leon Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 5 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 5 years, by conducting some research online, Leon has developed the following estimates.

Engine Overhaul
Estimated Cash Outflow

Probability
Assessment
$320 10%
450 30%
710 50%
840 10%




Click here to view factor tables

How much should Leon Bowie deposit today in an account earning 8%, compounded annually, so that he will have enough money on hand in 5 years to pay for the overhaul?

Solutions

Expert Solution

Answer

Estimated Cash Outflow

Probability

Cash Flow

                                        320.00

10%

             32.00

                                        450.00

30%

          135.00

                                        710.00

50%

          355.00

                                        840.00

10%

             84.00

                                   

Total

          606.00

Future Value = $606

Cost of Capital (i) = 8%

Time (n) = 5 Years

Present Value = FV * {1 / (1 + i)^n}

= $606 * (1 / (1 + 0.08)^5}

= $606 * (1 / 1.4693280768)

= $606 * 0.680532

= $412.4

Leon needs to invest $412.4 today to get enough money in 5 years.

Dear Student, if u have any query, plz feel free to reach me.

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Leon Bowie is trying to determine the amount to set aside so that he will have...
Leon Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 5 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 5 years, by conducting some research online, Leon has developed the following estimates. Engine Overhaul Estimated Cash Outflow Probability Assessment $320 10% 450 30% 710 50% 840 10% Click here to view factor tables How much...
Leon Bowie is trying to determine the amount to set aside so that he will have...
Leon Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 3 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 3 years, by conducting some research online, Leon has developed the following estimates. Engine Overhaul Estimated Cash Outflow Probability Assessment $360 10% 550 30% 800 50% 720 10% Click here to view factor tables How much...
John Bowie is trying to determine the amount to set aside so that he will have...
John Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 5 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 5 years, by conducting some research online, John has developed the following estimates. Engine Overhaul Estimated Cash Outflow Probability Assessment $340 10% 480 30% 840 50% 750 10% Click here to view factor tables How much...
IRAC/ILAC for annexure A PAYG Installment is an amount set aside to be used to pay...
IRAC/ILAC for annexure A PAYG Installment is an amount set aside to be used to pay tax liabilities.
Sara is 30 years old today and wants to set aside an equal amount at the...
Sara is 30 years old today and wants to set aside an equal amount at the end of each of the next 30 years into a retirement fund earning 10% p.a. so that he can retire at age 60. At retirement , the funds will be transferred to an investment account earning 6% p.a. He expects to live to age 80 and wants to be able to withdraw $375,000 per year from the account on his 61st through 80th birthdays....
Provide the Present Value of the gradient, and then determine the value Ruby must set aside.
Ruby Rose will be in graduate school for the next three years. She borrowed some money from the bank for her graduate education, which the bank has accepted to be paid after Ruby graduates from school in two years.The bank has accepted to the following payment plan: from the beginning of Year 4 (37th month) to end of year 5 (60th month), pay $600 in month 37 and increase payment by 4% every month thereafter.How much money should Ruby Rose...
What amount of money should be set aside today to provide 40 payments of $10,000 every...
What amount of money should be set aside today to provide 40 payments of $10,000 every six months if the first payment is to be made in 20 years from now and money is invested at 9% compounded semiannually? Cannot use Excel
How much would an investor have to set aside today in order to have $25,000 ten...
How much would an investor have to set aside today in order to have $25,000 ten years from now if the current rate is 12%?
Suppose the Blue Hand Hospitality Enterprises Co. wishes to set aside an equal, annual, end-of-year amount...
Suppose the Blue Hand Hospitality Enterprises Co. wishes to set aside an equal, annual, end-of-year amount in an investment account earning 9.50% per year over the next five years. The firm wants to have $5 million in the account when the account matures. How much must be deposited in the account at the end of each year? Group of answer choices $827,182.09 $891,410.73 $794,569.44 $844,200.00
Your grandparents are trying to reduce the taxable amount of their estate, so they give you...
Your grandparents are trying to reduce the taxable amount of their estate, so they give you $18,000 this year – your inheritance early. You decide to save it for a down payment on a house. You invest it in the stock market and average a 9% return. How much will your money be worth when you cash it out for your down payment in 10 years, assuming it is compounded monthly?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT