MANAGERIAL ACCOUNTING F/MGRS.
5th Edition
ISBN: 9781259969485
Author: Noreen
Publisher: RENT MCG
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Chapter 7A, Problem 7A.6E
1.
To determine
Concept Introduction:
Present Value is the amount on the current date which was received by the company in the future.
To Calculate: Present Value of amount.
2.
To determine
Concept Introduction:
Net present value: It is the net inflow from the project which is calculated after considering the taxes and present value factor. It is calculated by reducing the net cash outflow from the net cash inflow. NPV helps in decision making regarding a project.
Present Value is the amount on the current date which was received by the company in the future.
To Indicate: That person become the millionaire or not.
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1. (LO3) Installment Sale Zachary Davis owns several apartment buildings in Los Angeles and has an offer from a business associate, Ace Arnold, to purchase one of the buildings on October 31, 2021. Ace does not have the money to purchase the apartment building outright and offers to pay Zachary over a five-year period beginning next year. Zachary is leery, but he contacts his attorney to draw up a contract with the following information: • Sales price $500,000 • Payments of $100,000 each, to be made on January 1 of 2022, 2023, 2024, 2025, and 2026 • Interest rate 6%, semiannual compounding beginning January 1, 2022. Zachary had paid $385,000 for the building and its adjusted basis as of October 31, 2021 is $351,400. He would like you to prepare his 2021 tax return and believes he should not have to pay any tax on the sale until 2026 when he receives the final payment. Prepare a response to Zachary and the file.
6.4
A $3.6 million state lottery pays $15,000 at the beginning of each month for 20 years. How much money must the state actually have in hand to set up the payments for this prize if money is worth 9%, compounded monthly?
(a) Decide whether the problem relates to an ordinary annuity or an annuity due.
annuity due
ordinary annuity
(b) Solve the problem. (Round your answer to the nearest cent.)$
fin320
(Related to Checkpoint 6.2) (Present value of annuity payments) The state lottery's million-dollar payout provides for
$1.3 million to be paid in 20 installments of $65,000 per payment. The first
$65,000 payment is made immediately, and the 19 remaining $65,000
payments occur at the end of each of the next 19years. If 7 percent is the discount rate, what is the present value of this stream of cash flows? If
14 percent is the discount rate, what is the present value of the cash flows?
a. If 7percent is the discount rate, the present value of the annuity due is
$ (Round to the nearest cent.)
b.If 14 percent is the discount rate, the present value of the annuity due is
$ (Round to the nearest cent.)
Chapter 7A Solutions
MANAGERIAL ACCOUNTING F/MGRS.
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