Crane Company is considering an investment that will return a lump sum of $898,9
ID: 2575600 • Letter: C
Question
Crane Company is considering an investment that will return a lump sum of $898,900, 6 years from now. What amount should Crane Company pay for this investment to earn an 9% return? (Round answer to 2 decimal places, e.g. 25.25.) Lincoln Company should pay _______?
View the factor table below.
(n)
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
15%
1
.96154
.95238
.94340
.93458
.92593
.91743
.90909
.90090
.89286
.86957
2
.92456
.90703
.89000
.87344
.85734
.84168
.82645
.81162
.79719
.75614
3
.88900
.86384
.83962
.81630
.79383
.77218
.75132
.73119
.71178
.65752
4
.85480
.82270
.79209
.76290
.73503
.70843
.68301
.65873
.63552
.57175
5
.82193
.78353
.74726
.71299
.68058
.64993
.62092
.59345
.56743
.49718
6
.79031
.74622
.70496
.66634
.63017
.59627
.56447
.53464
.50663
.43233
7
.75992
.71068
.66506
.62275
.58349
.54703
.51316
.48166
.45235
.37594
8
.73069
.67684
.62741
.58201
.54027
.50187
.46651
.43393
.40388
.32690
9
.70259
.64461
.59190
.54393
.50025
.46043
.42410
.39092
.36061
.28426
10
.67556
.61391
.55839
.50835
.46319
.42241
.38554
.35218
.32197
.24719
11
.64958
.58468
.52679
.47509
.42888
.38753
.35049
.31728
.28748
.21494
12
.62460
.55684
.49697
.44401
.39711
.35554
.31863
.28584
.25668
.18691
13
.60057
.53032
.46884
.41496
.36770
.32618
.28966
.25751
.22917
.16253
14
.57748
.50507
.44230
.38782
.34046
.29925
.26333
.23199
.20462
.14133
15
.55526
.48102
.41727
.36245
.31524
.27454
.23939
.20900
.18270
.12289
16
.53391
.45811
.39365
.33873
.29189
.25187
.21763
.18829
.16312
.10687
17
.51337
.43630
.37136
.31657
.27027
.23107
.19785
.16963
.14564
.09293
18
.49363
.41552
.35034
.29586
.25025
.21199
.17986
.15282
.13004
.08081
19
.47464
.39573
.33051
.27615
.23171
.19449
.16351
.13768
.11611
.07027
20
.45639
.37689
.31180
.25842
.21455
.17843
.14864
.12403
.10367
.06110
Table3Present Value of 1(n)
Periods
4%
5%
6%
7%
8%
9%
10%
11%
12%
15%
1
.96154
.95238
.94340
.93458
.92593
.91743
.90909
.90090
.89286
.86957
2
.92456
.90703
.89000
.87344
.85734
.84168
.82645
.81162
.79719
.75614
3
.88900
.86384
.83962
.81630
.79383
.77218
.75132
.73119
.71178
.65752
4
.85480
.82270
.79209
.76290
.73503
.70843
.68301
.65873
.63552
.57175
5
.82193
.78353
.74726
.71299
.68058
.64993
.62092
.59345
.56743
.49718
6
.79031
.74622
.70496
.66634
.63017
.59627
.56447
.53464
.50663
.43233
7
.75992
.71068
.66506
.62275
.58349
.54703
.51316
.48166
.45235
.37594
8
.73069
.67684
.62741
.58201
.54027
.50187
.46651
.43393
.40388
.32690
9
.70259
.64461
.59190
.54393
.50025
.46043
.42410
.39092
.36061
.28426
10
.67556
.61391
.55839
.50835
.46319
.42241
.38554
.35218
.32197
.24719
11
.64958
.58468
.52679
.47509
.42888
.38753
.35049
.31728
.28748
.21494
12
.62460
.55684
.49697
.44401
.39711
.35554
.31863
.28584
.25668
.18691
13
.60057
.53032
.46884
.41496
.36770
.32618
.28966
.25751
.22917
.16253
14
.57748
.50507
.44230
.38782
.34046
.29925
.26333
.23199
.20462
.14133
15
.55526
.48102
.41727
.36245
.31524
.27454
.23939
.20900
.18270
.12289
16
.53391
.45811
.39365
.33873
.29189
.25187
.21763
.18829
.16312
.10687
17
.51337
.43630
.37136
.31657
.27027
.23107
.19785
.16963
.14564
.09293
18
.49363
.41552
.35034
.29586
.25025
.21199
.17986
.15282
.13004
.08081
19
.47464
.39573
.33051
.27615
.23171
.19449
.16351
.13768
.11611
.07027
20
.45639
.37689
.31180
.25842
.21455
.17843
.14864
.12403
.10367
.06110
Explanation / Answer
Present Value of Investment = Future Value / (1 + r)^n
where r represents rate of interest and n represents no of periods
Present Value of Investment = 898900 / (1 + 9%)^6
Present Value of Investment = $ 535,984.70
Lincoln Company should pay $ 535,984.70