Each of the following parts is independent. (Ignore income taxes.) 1. Largo Freightlines plans to build a

Question:

Each of the following parts is independent. (Ignore income taxes.)
1. Largo Freightlines plans to build a new garage in three years to have more space for repairing its trucks. The garage will cost $400,000. What lump-sum amount should the company invest now to have the $400,000 available at the end of the three-year period? Assume that the company can invest money at:
a. Eight percent.
b. Twelve percent.
2. Martell Products, Inc., can purchase a new copier that will save $5,000 per year in copying costs. The copier will last for six years and have no . What is the maximum purchase price that Martell Products would be willing to pay for the copier if the company’s required rate of return is:
a. Ten percent?
b. Sixteen percent?
3. Sally has just won the million-dollar Big Slam jackpot at a gambling casino. The casino will pay her $50,000 per year for 20 years as the payoff. If Sally can invest money at a 10% rate of return, what is the present value of her winnings? Did she really win a million dollars? Explain.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...