On March 15, Year 1, Kathleen Corp. adopted a plan to accumulate $1,000,000 by September 1, Year 5. Kathleen plans to make 4 equal annual deposits to a fund that will earn interest at 10% compounded annually. Kathleen made the first deposit on September 1, Year 1. Future value and future amount factors are as follows:
Future value of $1 at 10% for 4 periods
1.46
Future amount of ordinary annuity of $1
at 10% for 4
periods
4.64
Future amount of annuity in advance of $1
at 10% for 4 periods
5.11
Kathleen should make 4 annual deposits (rounded) of
$684,930
$215,500
$195,700
$250,000
On July 1, Year 4, Ahmed signed an agreement to operate as a franchisee of Teacake Pastries, Inc., for an initial franchise fee of $240,000. On the same date, Ahmed paid $80,000 and agreed to pay the balance in four equal annual payments of $40,000 beginning July 1, Year 5. The down payment is not refundable, and no future services are required of the franchisor. Ahmed can borrow at 14% for a loan of this type.
Present value of $1 at 14% for 4 periods
0.59
Future amount of $1 at 14% for 4 periods
1.69
Present value of an ordinary annuity of $1 at 14% for 4 periods
2.91
Ahmed should record the acquisition cost of the franchise on July 1, Year 4, at
$196,400
$174,400
$270,400
$240,000
On December 30 of the current year, Azrael, Inc., purchased a machine from Abiss Corp. in exchange for a noninterest-bearing note requiring 8 payments of $20,000. The first payment was made on December 30, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:
Present Value of
Present Value of
Ordinary Annuity
Annuity in Advance
Period
of $1 at 11%
of
$1 at 11%
7
4.712
5.231
8
5.146
5.712
On Azrael's current year December 31 balance sheet, the note payable to Abiss was
$104,620
$94,240
$102,920
$114,240
Chambers Company bought Machine 1 on March 5, Year 1, for $5,000 cash. The estimated salvage was $200 and the estimated life was 11 years. On March 5, Year 2, the company learned that it could purchase a different machine for $8,000 cash. It would save the company an estimated $250 per year. The new machine would have no estimated salvage and an estimated life of 10 years. The company could sell Machine 1 for $3,000 on March 5, Year 2. Ignoring income taxes, which of the following calculations would best assist the company in deciding whether to purchase the new machine?
(Present value of an annuity of $250) - $8,000.
(Present value of an annuity of $250) + $3,000 - $8,000 - $5,000.
(Present value of an annuity of $250) + $3,000 - $8,000 -
$4,800.
(Present value of an annuity of $250) + $3,000 - $8,000.