1) Answer each of the following independent situations,showing complete work (with the time value of money). All interestrates are given as annual interest rates.
a) On January 1, 2016, Adelphi Corporation sold awarehouse that cost $411,000 and that had accumulated depreciationof $136,000 on the date of sale. Adelphi received as considerationa $400,000 non-interest-bearing note, due on January 1, 2020. Therewas no established exchange price for the building, and the notehad no ready market. The prevailing rate of interest for a note ofthis type on January 1, 2016, was 8%. At what amount should thegain or loss from the sale of the building be reported? (2 points)[This is a present value problem, where $400,000 is theFV]
b) On January 1, 2016, Adelphi Corporation issued 1,000of the 6%, 10-year bonds. The bonds have a par value of $1,000 perbond, and pay interest semi-annually beginning January 1, 2017.Adelphi sold the bonds to yield 8% annually. How much did Adelphireceive as the issue price of the bonds? (2 points) [Thisis a present value problem. You have to use 3% to calculate thesemi-annual interest payment, 4% as the rate to look up the PVfactor, and 20 as the number ofperiods]
c) Adelphi Corporation bought new equipment and agreedto pay for it in five equal annual installments of $10,000 startingon the date of the purchase. Assuming that a prevailing annualinterest rate of 10% applies to this contract, how much shouldAdelphi record as the purchase cost of the equipment? (2 points)[This is a present value of annuity dueproblem]
d) Adelphi Corporation purchased a special conveyorsystem on January 1, 2016. The purchase agreement stipulated thatAdelphi should pay $15,000 at the time of purchase and $50,000 atthe end of each of the 5 years starting with 2016. The conveyorsystem should be recorded on January 1, 2016 at what amount,assuming an appropriate annual interest rate of 8%? (2 points)[This is a present value of ordinary annuityproblem]
e) Adelphi Corporation wants to withdraw $500,000 eachyear from an investment fund at the end of each of the next 9 yearsbeginning with 2016. What should be the required initial investmentat the beginning of 2016 if the fund earns 12% per year? (2 points)[This is a present value of ordinary annuityproblem]
1) Answer each of the following independent situations,showing complete work (with the time value of money). All interestrates are given as annual interest rates.
a) On January 1, 2016, Adelphi Corporation sold awarehouse that cost $411,000 and that had accumulated depreciationof $136,000 on the date of sale. Adelphi received as considerationa $400,000 non-interest-bearing note, due on January 1, 2020. Therewas no established exchange price for the building, and the notehad no ready market. The prevailing rate of interest for a note ofthis type on January 1, 2016, was 8%. At what amount should thegain or loss from the sale of the building be reported? (2 points)[This is a present value problem, where $400,000 is theFV]
b) On January 1, 2016, Adelphi Corporation issued 1,000of the 6%, 10-year bonds. The bonds have a par value of $1,000 perbond, and pay interest semi-annually beginning January 1, 2017.Adelphi sold the bonds to yield 8% annually. How much did Adelphireceive as the issue price of the bonds? (2 points) [Thisis a present value problem. You have to use 3% to calculate thesemi-annual interest payment, 4% as the rate to look up the PVfactor, and 20 as the number ofperiods]
c) Adelphi Corporation bought new equipment and agreedto pay for it in five equal annual installments of $10,000 startingon the date of the purchase. Assuming that a prevailing annualinterest rate of 10% applies to this contract, how much shouldAdelphi record as the purchase cost of the equipment? (2 points)[This is a present value of annuity dueproblem]
d) Adelphi Corporation purchased a special conveyorsystem on January 1, 2016. The purchase agreement stipulated thatAdelphi should pay $15,000 at the time of purchase and $50,000 atthe end of each of the 5 years starting with 2016. The conveyorsystem should be recorded on January 1, 2016 at what amount,assuming an appropriate annual interest rate of 8%? (2 points)[This is a present value of ordinary annuityproblem]
e) Adelphi Corporation wants to withdraw $500,000 eachyear from an investment fund at the end of each of the next 9 yearsbeginning with 2016. What should be the required initial investmentat the beginning of 2016 if the fund earns 12% per year? (2 points)[This is a present value of ordinary annuityproblem]
