Question

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

Answer 1

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