Question

In: Finance

A. In a series of semi-annual payments of P14465 each, the first payment is due at...

A. In a series of semi-annual payments of P14465 each, the first payment is due at the beginning of 5 years and the last at the end of 12 years and 6 months. If money is worth 11% compounded semi-annually, find the present value of the deferred annuity.

B. The cost of equipment is P582277 and the cost of installation is P27253, if the salvage value is 10% of the cost of the equipment at the end of 8 years , determine the depreciation change at the end of year 4 using double-declining balance method.

MANUAL SOLUTION

Solutions

Expert Solution

A] The number of payments = 8*2+1 = 17
Value of the semi-annual payments at t5 = 14465*1.055*(1.055^17-1)/(0.055*1.055^17) = $      165,800.17
PV of the annuity = 165800.17/1.055^10 = $        97,064.49
B] Rate of depreciation = (100%/8)*2 = 25.00%
The depreciation schedule is given below:
Year Beginning Balance Depreciation Accumulated Depreciation Ending Balance
1 $            609,530 $       152,383 $        152,383 $        457,148
2 $            457,148 $       114,287 $        114,287 $        342,861
3 $            342,861 $         85,715 $          85,715 $        257,145
4 $            257,145 $         64,286 $          64,286 $        192,859
5 $            192,859 $         48,215 $          48,215 $        144,644
6 $            144,644 $         36,161 $          36,161 $        108,483
7 $            108,483 $         27,121 $          27,121 $ 81,362

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