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Certification (Signature Required By All…show more content… The $ 100,000 paid annually at the end of each of the next 25 years is the better option. PV n = (CF/r) X [1- 1/(1+r)n] = $1,409,394.457
E5-4 Your firm has the option of making an investment in new software that will cost $130,000 today and is estimated to provide the savings shown in the following table over its 5-year life: Year
$15,000 Should the firm make this investment if it requires a minimum annual return of 9% on all investments? 130,000 X (1+.09)5 =$ 206,005.82 Yes the firm is wise to choose this investment at this time based on the Future Value of the investment decision. The reason is that present value inflows is more than present value outflows.
E5-5 Joseph is a friend of yours. He has plenty of money but little financial sense. He received a gift of $12,000 for his recent graduation and is looking for a bank in which to deposit the funds. Partners’ Savings Bank offers an account with an annual interest rate of 3% compounded semiannually, while Selwyn’s offers an account with a 2.75% annual interest rate compounded continuously. Calculate the value of the two accounts at the end of one year, and recommend to Joseph which account he should choose. Using the compounding calculation FVn = PV X (1 + 0.03/2)mXn FV1= $12,000 X (1+0.03/2)2X1 =$12,362.70 Money