Mary Ann requires about 30 pounds of bananas each month. January through June, a
ID: 1094883 • Letter: M
Question
Mary Ann requires about 30 pounds of bananas each month. January through June, and 33 pounds of bananas each month, July through December, to make banana cream pies for her friends. Bananas can be bought at the local market for 40 cents/lb. If Mary Ann's cost of money is 3%, about home much should she set aside at the beginning of each year to pay for bananas? It is likely that airplane tickets will increase 8% per year for the next 4 years. The cost of a plane ticket at the end of the first year will be $180. I low much money would need to be place in a savings account now to have money to pay a student's travel home at the end of each year for the next 4 years? Assume the savings account pays 5 percent annual interest? The answer is closes to? Door Construction just purchased a new track hoe attachment costing $12,500. The CFO, John expectsExplanation / Answer
6) For monthly calculations cost comes at 3/12%
Cost at the end of first month = 30 * 0.4 = $12
PV of the cost at 3/12% = 12/(1 + 0.03/12)1 = $11.97
Cost at the end of second month = 30 * 0.4 = $12
PV of the cost at 3/12% = 12/(1 + 0.03/12)2 = $11.94
Similarly do it for 12 months
Demand changes in the 7th month
Cost at the end of seventh month = 35 * 0.4 = $14
PV of the cost at 3/12% = 14/(1 + 0.03/12)7 = $13.78
And so on............
Sum = $153.5
Ans) d) $153.5
7) Cost of plane ticket at the end of first year = $180
Present value at 5% = $180/(1 + 0.05)1 = $171.43
ticket price increases at 8%
Cost of the ticket at the end of second year = 180 * (1 + 0.08)1 = $194.4
Present value at 5% = $194.4/(1 + 0.05)2 = $176.33
Cost of the ticket at the end of third year = $194.4 * (1 + 0.08)2 = $209.95
Present value at 5% = $209.95/(1 + 0.05)3 = $181.36
Cost of the ticket at the end of fourth year = $209.95 * (1 + 0.08)3 = $226.75
Present value at 5% = $226.75/(1 + 0.05)4 = $186.55
Total PV = $715.6
Hence it is closest to c) $716
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