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1)Given the following information for Smashville, Inc
1)Given the following information for Smashville, Inc., construct a balance sheet: Current liabilities: Cash: Long-term debt: Other assets: Fixed assets: Other liabilities: Investments: Operating assets: $ 28,000 $ 21,000 $110,000 $ 38,000 $156,000 $ 16,000 $ 42,000 $ 35,000 Total assets 0 Total liabilities and equity
2)You are graduating from college at the end of this semester and after reading the The Business of Life box in this chapter, you have decided to invest $4,000 at the end of each year into a Roth IRA for the next 46 years. If you earn 10 percent compounded annually on your investment, how much will you have when you retire in 46 years? How much will you have if you wait 10 years before beginning to save and only make 36 payments into your retirement account? How much will you have when you retire in 46 years? $ (Round to the nearest cent.)
3) Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent who believes that Nicki is an older woman who is from teaching. He talks to her about several annuities that she could buy that would guarantee her a fixed annual income. The annuities are as follows: Purchase Price of the Amount of Money Duration of the Annuity Annuity (At t-0) Received Per Year Annuity (Years) $50,000 $7,000 $50,000 $7,500 16 $40,000 $6,000 22 Nicki could earn 11 percent on her money by placing it in a savings account. Alternatively, she could place it in any of the above annuities. Which annuities in the table above, if any, will earn Nicki a higher return than a. If Nicki could earn 11 percent on her money, what is the present value of annuity A with $7.000 payments per year and 22 years duration? fred $ (Round to the nearest cent)
Expert Solution
1)Please find below the balance sheet of Smashville Inc.
| Assets | Amount | Liabilities & Equity | Amount |
| Cash | 21000 | Current Liabilities | 28000 |
| Other Assets | 38000 | Long term debt | 110000 |
| Fixed Assets | 156000 | Other Liabilities | 16000 |
| Investments | 42000 | ||
| Operating Assets | 35000 | Equity | 138000 |
| Total Assets | 292000 | Total Liabilities and Equity | 292000 |
As we know the assets and liabilities & equity should tally, we need to find the equity of the firm. Equity of the firm is Assets - Liabilities = Equity.
Equity of Smashville Inc. is 138,000
2)
Solution :-
Amount invested at the end of each year = $4000
Rate of interest per year = 10%
Future value at the end of 46 years =
= Cash deposit each year * FVAF(10% , 46) =
= $4000*791.79 = $3167181.28
In case if we make 36 payments then amount at the time of retirement = $4000 * FVAF(10% , 36) =
= $4000 * 299.126 = $1196507.22
3)
The present value of the annuity at an annual rate of 11% for 22 years, with payout of $7,000 per year = 57,230.17. This can be calculated using the PV function in excel which is = PV(rate, number of years or duration of annuity, payment per year).
Alternatively, formula for present value = C*((1-(1+i)^-n))/i, where,
C = Amount of money received per year,
i = rate of return,
n = duration of annuity.
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