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PART A.) A company is considering the purchase of a piece of equipment for $78,100. If instead the company waits 3 years the machine appreciates in value at 5% per year interest. How much money does the company have to save per year, to afford the equipment in Year 3?

PART A.) A company is considering the purchase of a piece of equipment for $78,100. If instead the company waits 3 years the machine appreciates in value at 5% per year interest. How much money does the company have to save per year, to afford the equipment in Year 3?

Financial Accounting: The Impact on Decision Makers
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money
Section: Chapter Questions
Problem 9.21MCE
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PROBLEM 1: PART A.) A company is considering the purchase of a piece of equipment for $78,100. If instead the company waits 3 years the machine appreciates in value at 5% per year interest. How much money does the company have to save per year, to afford the equipment in Year 3? PART B.) George is loaned $100,000 in Year 0. Approximately (round up to the nearest year) many years will it take him to pay off the loan at 4% interest if he pays down the loan by $10,000 in Year 1 and increases his payment by $1,000 in each year starting in Year 2? PART C.) In planning for your retirement, you expect to save $5,000 in year 1, $6,000 in year 2, and amounts increasing by $1,000 each year through year 20. If your investments earn 7% interest per year, what is your retirement account worth at year 20?
Transcribed Image Text:PROBLEM 1: PART A.) A company is considering the purchase of a piece of equipment for $78,100. If instead the company waits 3 years the machine appreciates in value at 5% per year interest. How much money does the company have to save per year, to afford the equipment in Year 3? PART B.) George is loaned $100,000 in Year 0. Approximately (round up to the nearest year) many years will it take him to pay off the loan at 4% interest if he pays down the loan by $10,000 in Year 1 and increases his payment by $1,000 in each year starting in Year 2? PART C.) In planning for your retirement, you expect to save $5,000 in year 1, $6,000 in year 2, and amounts increasing by $1,000 each year through year 20. If your investments earn 7% interest per year, what is your retirement account worth at year 20?
Expert Solution
Step 1 Analysis

First we need to calculate future price of machine by using the future value equation.

Future Value(FV) =PV(1+r)n

where

PV =present value

r=rate of interest

n=number of compounding

thereafter we need to use future value of annuity formula 

CF =FVn(1+r)n -1r

Where

CF =Saving per year

r=rate of interest

n=number of compounding

 

 

 

 

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