Question

1) On January 1 of this year, Shannon Company completed the following transactions (assume a 8% annual interest rate): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

1. Bought a delivery truck and agreed to pay $60,200 at the end of three years.
2. Rented an office building and was given the option of paying $10,200 at the end of each of the next three years or paying $28,200 immediately.
3. Established a savings account by depositing a single amount that will increase to $90,400 at the end of seven years.
4. Decided to deposit a single sum in the bank that will provide 8 equal annual year-end payments of $40,200 to a retired employee (payments starting December 31 of this year).

d. What single sum must be deposited in the bank on January 1 of this year? (Round your answer to nearest whole dollar.)

2) An investment will pay $15,600 at the end of each year for eight years and a one-time payment of $156,000 at the end of the eighth year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

Determine the present value of this investment using a 7% annual interest rate. (Round your answer to the nearest whole dollar.)

Answer 1

Solution 1d) Calculation of single sum that must be deposited in the bank on January 1 of this year:

Following are the steps to be followed on Microsoft Excel to calculate the Single payment:

Step 1: Click on "FORMULAS" tab at the top of Microsoft Excel
Step 2: Select the option "Financial"
Step 3: Under "Financial" select the option "PV"
Step 4: Insert Rate = 0.08 Nper = 8 PMT = -40,200

PV = $231,014.89 or $231,015

Therefore, the single sum that must be deposited in the bank on January 1 of this year is $231,015

Solution 2) Calculation of Present Value of the investment

Year	Cash Inflows $	Present Value Factor @ 7%	Present Value of the Cash Inflows $
1	15,600	0.9346	14,579.44
2	15,600	0.8734	13,625.64
3	15,600	0.8163	12,734.25
4	15,600	0.7629	11,901.17
5	15,600	0.7130	11,122.58
6	15,600	0.6663	10,394.94
7	15,600	0.6227	9,714.90
8	15,600	0.5820	9,079.34
8	156,000	0.5820	90,793.42
		Total Present Value of the Cash Inflows	1,83,945.68

Therefore, the Present Value of the investment is $183,946