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Chapter 6 - Excel Solutions

1. The present value of pension obligations for three employees ranged from $116,725 to $142,105 based on annual payments of $20,000-$30,000 starting between 2014-2016. 2. As of December 31, 2014 the present value of the pension obligations for the three employees totaled $533,756. 3. The amount needed for the annual contribution to fund the obligations over 3 years at 11% interest is $143,881.

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48 views8 pages

Chapter 6 - Excel Solutions

1. The present value of pension obligations for three employees ranged from $116,725 to $142,105 based on annual payments of $20,000-$30,000 starting between 2014-2016. 2. As of December 31, 2014 the present value of the pension obligations for the three employees totaled $533,756. 3. The amount needed for the annual contribution to fund the obligations over 3 years at 11% interest is $143,881.

Uploaded by

Halt Doug
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLS, PDF, TXT or read online on Scribd
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Student Name: Instructor

Class: McGraw-Hill/Irwin
Problem 06-05

CLAUSSEN PURCHASE
Estimated Cash Flows

Yearly Time Interest


Cash Flow Period Rate *Factor PVA PV
Years 1-5 $ 70,000 5 8% 3.99271 $ 279,490
Years 6-10 70,000 5 10% 3.79079 265,355
265,355 5 8% 0.68058 $ 180,596
Years 11-20 70,000 10 12% 5.65022 395,515
395,515 5 10% 0.62092 245,583
245,583 5 8% 0.68058 167,139
End of Year 20 400,000 10 12% 0.32197 54,424

Maximum Purchase Price $ 681,648


Correct!
* Use the Present and Future Value Tables in the text
or enter the proper formula rounded to 5 decimal places
Given Data P06-05:

CLAUSSEN PURCHASE

Anticipated cash flows per year for 20 years $ 70,000


Selling price in 20 years $ 400,000
Desired rate of return:
Years 1-5 8%
Years 6-10 10%
Years 11-20 12%
Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 06-06

Part 1:
JOHN JAMISON

30,000 = 0.5 *
PV of $1 factor =
60,000

*Present value of $1: n=?, i=8% (from Table 2, n=approximately 9 years)


Correct!
Part 2:
JASMINE TEA COMPANY

$28,700 = 4.10000 *
Annuity factor =
$7,000

Present value of an ordinary annuity of $1: n=5, i=? (from Table 4, i = approximately 7 %)
Correct!
Part 3:
SAM ROBINSON

$10,000 = $1,558 = Payment


Annuity amount =
6.41766 * Correct!

Present value of an ordinary annuity of $1: n=10, i=9% (from Table 4)


Given Data P06-06:

Part 1:
JOHN JAMISON

Amount needed to accumulate $ 60,000


Amount invested today $ 30,000
Desired rate of return:
Annually compounded interest 8%

Part 2:
JASMINE TEA COMPANY
Amount paid for merchandise $ 28,700
Required annual payments $ 7,000
Number of payments required 5

Part 3:
SAM ROBINSON
Amount borrowed $ 10,000
Number of installments 10
Annual rate 9%
Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 06-07

THE LOWLIFE COMPANY


Calculations

Time Interest Annuity Annuity


PVA Period Rate *Factor Amount Calculation
Part 1 $ 250,000 4 10% 3.16987 $ 78,868 Payment
Part 2 $ 250,000 5 8% 3.99271 $ 62,614 Payment
Part 3 $ 250,000 10% 4.86845 $ 51,351 7 Payments
Part 4 $ 250,000 3 2.40184 $ 104,087 12% Interest

* Use the Present and Future Value Tables in the text


or enter the proper formula rounded to 5 decimal places
Given Data P06-07:

LOWLIFE COMPANY

Amount of loan $ 250,000


Part 1:
Interest rate 10%
Number of payments 4
Part 2:
Interest rate 8%
Number of payments 5
Part 3:
Interest rate 10%
Annual payment amount $ 51,351
Part 4:
Number of payments 3
Annual payment amount $ 104,087
Student Name: Instructor
Class: McGraw-Hill/Irwin
Problem 06-14

HORIZON DISTRIBUTING COMPANY


Pension Obligations
as of December 31, 2011

Requirement 1:
Date of *Deferred PV of
Annual First Time Interest Annuity Pension
Employee Payment Payment Periods Rate Factor Obligations
Tinkers $ 20,000 12/31/2014 17 2 11% 5.83627 $ 116,725 «- Correct!
Evers $ 25,000 12/31/2015 18 3 11% 5.25791 $ 131,448 «- Correct!
Chance $ 30,000 12/31/2016 19 4 11% 4.73684 $ 142,105 «- Correct!

* Use the Present and Future Value Tables in the text


or enter the proper formula rounded to 5 decimal places

Pension Obligations as of
December 31, 2014
Requirement 2:
PV *FV FV
as of Time Interest Annuity as of
Employee 12/31/2011 Period Rate Factor 12/31/2014
Tinkers $ 116,725 3 11% 1.36763 $ 159,637 «- Correct!
Evers $ 131,448 3 11% 1.36763 $ 179,772 «- Correct!
Chance $ 142,105 3 11% 1.36763 $ 194,347 «- Correct!
Total present value $ 533,756 «- Correct!

Amount of annual contribution: 3 11% 3.70970 $ 143,881 «- Correct!

* Use the Present and Future Value Tables in the text


or enter the proper formula rounded to 5 decimal places
Given Data P06-14:

HORIZON DISTRIBUTING COMPANY

Life expectancy beyond retirement 15


Interest rate 11%
Number of equal contributions 3

Date of
Annual First
Employee Payment Payment
Tinkers $ 20,000 12/31/2016
Evers $ 25,000 12/31/2017
Chance $ 30,000 12/31/2018

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