i) As per your own understanding of the cash flow pattern of deposits presented above, compute the valu of the investment at the end of vear 7. Clearly highlight all computational steps.- ii) Clearly indicate who, amongst John and Marsha, is conceptually correct in terms of the type of cash flow
i) As per your own understanding of the cash flow pattern of deposits presented above, compute the valu of the investment at the end of vear 7. Clearly highlight all computational steps.- ii) Clearly indicate who, amongst John and Marsha, is conceptually correct in terms of the type of cash flow
Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion
Section: Chapter Questions
Problem 50P
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Transcribed Image Text:John and Marsha are in an argument about an
investment which requires a series of six annual
deposits.
If an investor decides to invest, he/she has to deposit
$30,000 at the end of year 1, $30,000 at the end of year
2, $30,000 at the end of year 4, $30,000 at the end of
year 5, $30,000 at the end of year 6 and $30,000 at the
end of year 7. The deposited amounts grow at a rate of
5% p.a.
The argument is about the nature of the cash flow
stream of the six deposits – whether the cash flows are
-
an annuity or a mixed stream. As per John's opinion, the
value of this investment at the end of year 7 will be
$244,260.25 while Marsha thinks that the value of this
investment at the end of year 7 will be $207,795.07
You are required to assist both in coming to a resolution
of the argument by doing as follows:
i) As per your own understanding of the cash flow
pattern of deposits presented above, compute the value
of the investment at the end of vear 7. Clearly highlight
all computational steps.
ii) Clearly indicate who, amongst John and Marsha, is
conceptually correct in terms of the type of cash flow
stream and why? If you feel that the cash flow stream is
an annuity, state your reasons. If you think it is a mix
stream, state vour reasons within 50-100 words
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