Question
(a) A debt of $24,000, which is due 8 years from now, is instead to be paid off by four payments: $8000 now, $4000 in
(a) A debt of $24,000, which is due 8 years from now, is instead to be paid off by four payments: $8000 now, $4000 in 4 years, $5000 in 6 years, and a final payment at the end of 8 years. What would this payment be if an interest rate of 4% compounded semiannually is assumed?
(b) Suppose that a machine costing $9000.00 is to be replaced at the end of 7 years, at which time it will have a salvage value of $900.00. In order to provide money at that time for a new machine costing the same amount, a sinking fund is set up. The amount in the fund at the end of 8 years is to be the difference between the replacement cost and the salvage value. If equal payments are placed in the fund at the end of each quarter and the fund earns 8% compounded quarterly, what should each payment be?
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Financial and Managerial Accounting Information for Decisions
Authors: John Wild, Ken Shaw, Barbara Chiappetta
6th edition
78025761, 978-0078025761
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