WileyPLUS Assignment: Week 5 Assignment

Exercise 6-1

For each of the following cases, indicate (a) to what rate columns, and (b) to what number of periods you would refer in looking up the interest factor. 1. In a future value of 1 table:

		Annual Rate		Number of Years Invested		Compounded		(a) Rate of Interest		(b) Number of Periods
a.		10%		12		Annually			%
b.		12%		6		Quarterly			%
c.		12%		20		Semiannually			%

2. In a present value of an annuity of 1 table:

		Annual Rate		Number of Years Invested		Number of Rents Involved		Frequency of Rents		(a) Rate of Interest		(b) Number of Periods
a.		12%		26		26		Annually			%
b.		12%		16		32		Semiannually			%
c.		8%		7		28		Quarterly			%

Exercise 6-3 (Part Level Submission) Using the appropriate interest table, answer each of the following questions. (Each case is independent of the others.) Warning Don't show me this message again for the assignment Ok   Cancel

(a) Click here to view factor tables What is the future value of $8,160 at the end of 7 periods at 8% compounded interest? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) The future value $

(a)

Headland Company recently signed a lease for a new office building, for a lease period of 11 years. Under the lease agreement, a security deposit of $13,930 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 5% per year. Click here to view factor tables What amount will the company receive at the time the lease expires? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

The company will receive

$

Exercise 6-11 (Part Level Submission) Wildhorse Excavating Inc. is purchasing a bulldozer. The equipment has a price of $109,500. The manufacturer has offered a payment plan that would allow Wildhorse to make 14 equal annual payments of $14,864.21, with the first payment due one year after the purchase. Warning Don't show me this message again for the assignment Ok   Cancel

(a) How much total interest will Wildhorse pay on this payment plan? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Total interest $

Problem 6-3

Assume that Wal-Mart Stores, Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of 12,200 square yards. Bid A: A surface that costs $5.75 per square yard to install. This surface will have to be replaced at the end of 5 years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface. Bid B: A surface that costs $10.75 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 11 cents per square yard. Click here to view factor tables Compute present value of the bids. You may assume that the cost of capital is 11%, that the annual maintenance expenditures are incurred at the end of each year, and that prices are not expected to change during the next 10 years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Present value of outflows for Bid A		$
Present value of outflows for Bid B		$

Which bid should be accepted by Wal-Mart.

Wal-Mart should accept .

Problem 6-10

Bonita Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,850,800. An immediate down payment of $414,900 is required, and the remaining $1,435,900 would be paid off over 5 years at $355,100 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $505,200. As the owner of the property, the company will have the following out-of-pocket expenses each period.

Property taxes (to be paid at the end of each year)		$40,570
Insurance (to be paid at the beginning of each year)		26,800
Other (primarily maintenance which occurs at the end of each year)		16,850
		$84,220

Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Bonita Inc. if Bonita will lease the completed facility for 12 years. The annual costs for the lease would be $252,180. Bonita would have no responsibility related to the facility over the 12 years. The terms of the lease are that Bonita would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $93,200 is required when the store is opened. This deposit will be returned at the end of the 12th year, assuming no unusual damage to the building structure or fixtures. Click here to view factor tables Compute the present value of lease vs purchase. (Currently, the cost of funds for Bonita Inc. is 10%.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

	Lease		Purchase
Present value	$		$

Which of the two approaches should Bonita Inc. follow?

Bonita Inc. should   the facilities