a machine generates a yearly benefit (Savings) of $10,000 (per year) has a salvage value of $4000 at the end of its useful life of 7 years (discount rate is 8%). value of machine

Chapter 6 Problem #1 a machine generates a yearly Benefit Salvage value of $4,000 at the end of its useful life of years Rate is 82) (discount Value the Machane 20 yr Problem #2 $100,000 Bond Payable STATED Rute 10%, semi Annual Market Rate (Discoons or geild Rute) 8% Value of the Bond Amortization Table: Problem #3 Assume a market Rate of 12% Everything else the same as Problem #2 Value of the Bond. Amortization Table # Z Bond Issued at a premium $100,000, 20 year, 10% bond (semi-annual payments) Market rate is 8% 509 Answer: Interest payments are $5,000 every 6 months (100,000 * 10% * 6/12) PVA (4%, for 40 periods) PV (4%, for 40 periods) Bond value $5,000 * 19.793 = $100,000 * .208 = 98,965 20,800 119,765 100,000 19,765 Face Value Premium Payment Interest 0 1 2 3 4 5000 5000 5000 5000 5000 5000 5000 5000 5000 4791 4782 4774 4764 4755 4745 4735 4724 4713 Amortization Pre(disc) 19765 209 19556 218 19338 226 19111 236 18876 245 18631 255 265 18111 276 17836 287 17549 Balance 119765 119556 119338 119111 118876 118631 118376 118111 117836 117549 18376 8 9 37 38 39 40 5000 5000 5000 5000 4141 4106 4071 4033 859 894 929 967 2657 1763 833 -133 102657 101763 100833 99867 should equal 133 rounding error face valul With no Rounding error Using textbook tables: PVA (4%, for 40 periods) PV (4%, for 40 periods) Bond value $5,000 * 19.79277 = $100,000 * .20829 = 98,964 20,829 119,793 100,000 19,793 Face Value Premium Rounding error: 1 If you use Excel or a financial calculator, you error is even smaller. #3 Bond issued at a discount $100,000, 20 year, 10% bond (semi-annual payments) Market rate is 12% Answer: Interest payments are $5,000 every 6 months (100,000 * 10% * 6/12) 75,230 $5,000 * 15.046 = $100,000 * .097 = PVA (6% for 40 periods) PV (6% for 40 periods) Bond value 9,700 84,930 100,000 Face value Discount 15,070 interest payment 0 14974 1 2 -102 3 4 5 5000 5000 5000 5000 5000 5000 5000 5000 5096 5102 5108 5114 5121 5128 5136 5144 5153 amortization prem(disc) balance 15070 84,930 -96 85,026 14873 85,127 -108 14765 85,235 -114 14651 85,349 14530 14402 14266 -144 14122 -153 13969 86,031 -121 85,470 85,598 85,734 85,878 -128 -136 6 7 8 9 5000 Fael 37 38 39 40 5000 5000 5000 5000 5781 5827 5877 -781 -827 -877 2878 97,122 2050 97,950 1173 98,827 244 99,756 244 rounding error