Question

DB 6-3 – Various time value of money applications Answer each of these unrelated question and show calculations

(a) Gilbert Corporation bought new equipment and agreed to pay for it in four equal annual installments of $10,000 beginning at the start of year 1. Assuming that a prevailing interest rate of 6% applies to this contract, how much should Gilbert record as the cost of the equipment?

(b) Gilbert Corporation purchased a special conveyor system on December 31st of the current year. The purchase agreement stipulated that Gilbert should pay $50,000 at the time of purchase and $15,000 at the end of each of the next 5 years. The conveyor system should be recorded on December 31st at what amount, assuming an appropriate interest rate of 10%?

(c) Gilbert Corporation wants to withdraw $100,000 from an investment fund at the end of each year for 12 years. What should be the required initial investment at the beginning of the first year if the fund earns 6%?

(d) On January 1st, Gilbert Corporation sold $1,000,000 face value, 6%, 20-year bonds. The bonds pay interest annually beginning with December 31st of the current year. The bond were sold to yield 8% to the bondholders (i.e., the market rate of interest). At what amount did Gilbert sell the bonds?

Answer 1