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1) Pharoah Co
1) Pharoah Co. has machinery that cost $170,000. It is to be leased for 15 years with rent received at the beginning of each year. Pharoah wants a return of 5%.
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Compute the amount of the annual rent. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal
2)
Compute the PI statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 8 percent. Time:??0?1?2?3?4?5 Cash Flow: -82 -82 0 107 82 57 A. 26.08, Accept?B. 1.32, Accept??C. 8.00, Reject??D. 25.12, Accept
3)
(a) How many years will it take for $7500 to accumulate to $9517.39 at 3% compounded semi-annually? (b) Over what period of time will money triple at 9% compounded quarterly? (c) How many years will it take for a loan of $10,000 to amount to $13,684 at 10.5% compounded monthly?
Expert Solution
1)
Computation of Amount of Annual Rent:
Given.
Cost of Machinery = $170,000
Lease Term = 15 years
Rate = 5%
Rent received in the beginning of the year.
Amount of Annual Rent = Cost of Machine / Present Value Factor for an annuity due for 15 periods at 5%
Here,
Present value factor for an annuity due for 15 periods at 5% = 1.05 * 10.37966 = 10.89864
Amount of Annual Rent = $170,000/10.89864 = $15,598
Note: 10.37966 has been taken from present value of annuity table which can be easily found on internet.
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