I. must the building be worth in 12 years? The company 15% per year. If Red Valv
ID: 1139661 • Letter: I
Question
I. must the building be worth in 12 years? The company 15% per year. If Red Valve Co. a new land now for $1.5 million for its corporate headquaners, what expects all expenditures to earn a rate of return of at east h can Wetherford, Inc., afford to spend now on an energy management system if the software will save the company 20,500 5 per year for the nest s years? Use an interest rate of 12%per year Peter Parker Supply Co. sells tamperproof, normally open thermostats (i.e thermostat closes as temperature rises). Annual cash flows are shown in the table below. Determine the future worth of the net cash flows at an interest rate of 8 % per year. 3. Yr 2 3456 7 Income, $1000 200 200 200 200 200 200 200 200 Cost, $1000 90 90 90 90 90 909090 How much money should John invest now in an insurance if he desires to have an annual fund of $25,000 for 10 years if the current interest rate is 11.5%.Explanation / Answer
(1)
Future value of investment ($) = 1,500,000 x F/P(15%, 12) = 1,500,000 x 5.3503** = 8,025,450
**F/P(r%, N) = (1 + r)N
(2)
Current spending ($) = 20,500 x P/A(12%, 8) = 20,500 x 4.9676** = 101,835.8
**From P/A factor table
(3)
Net annual benefit ($) = Revenue - Cost = 200,000 - 90,000 = 110,000
Future worth ($) = 110,000 x F/A(8%, 8) = 110,000 x 10.6366** = 1,170,026
**From F/A factor table
(4)
Current investment ($) = 25,000 x P/A(11.5%, 10) = 25,000 x 5.7678** = 144,195
**P/A(r%, N) = [1 - (1 + r)-N] / r
P/A(11.5%, 10) = [1 - (1.115)-10] / 0.115 = (1 - 0.3367) / 0.115 = 0.6633 / 0.115 = 5.7678