Accounting $311$ Intermediate Accounting I

Spring $2024$

Time Value of Money Assignment

Solve each of these independent scenarios, You need to use Excel to solve these. Please submit on an Excel spreadsheet with your work identified through the use of formulas.

#$1$ Carey Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carey wishes to sell the land now. It has located two potential buyers: Buyer $A,$ who is willing to pay $$575,000$ for the land now, and Buyer $B,$ who is willing to make $20$ annual payments of $$90,000$ each, with the first payment to be made $5$ years from today. Assuming that the appropriate rate of interest is $9\%,$ to whom should Carey sell the land?

#$2$ On January $1,2024$ Lance Co$.$ issued five$-$year bonds with a face value of $$700,000$ and a stated interest rate of $12\%$ payable semiannually on July $1$ and January $1.$ The bonds were sold to yield $10\%.$ Calculate the cash proceeds from issuing the bonds.

#$3$ Bob Smith borrowed $$800,000$ on Jan $1,2022.$ This amount, plus accrued interest at $12\%$ compounded semiannually, is to be repaid in one palyment on Jan $1,2032.$ To retire this debt, Bob plans to make $5$ equal payments annually to a sinking fund starting on Jan $1,2027.$ The fund is expected to earn $10\%,$ compounded annually. How large must these payments be to completely retire the debt when due?

#$4$ Jill Jones is excited about the birth of her first grandchild. She wants to provide money for college later on$,$ but doesn't know how many years she will be able to make payments into a fund She decides to put in a lump sum of money now which she wants to be equal to $$50,000$ in $18$ years. If the savings instrument she invests in earns $6\%$ compounded annually $($at the end of each period$),$ how much does she need to invest today to meet the commitment? How much would be needed if the compounding changed to quarterly?, monthly?, weekly?, daily?

#$5$ John and Carol were so happy when they bought their house $2$ years ago. They got a mortgage for $$250,000$ at $4\mathrm{.}5\%$ interest with monthly payments $($at the end of each month$)$ of $$1,266\mathrm{.}72$ for $30$ years $(360$ months$).$ They were approached the other day by a financial planner who told them they could save a lot of interest on their loan and pay it off faster if they increased their monthly payment by a small amount. He suggested increasing the payment by $$100$ per month. Each remaining payment would be $$1,366\mathrm{.}72.$ Right now they have made payments for exactly $2$ years $(24$ months$),$ and could implement this plan without refinancing costs right away. During which month would the final payment now be made $($round up$)?$ How much interest over the life$-$time of the loan would John and Carol save with this plan? Repeat these calculations assuming an extra $$200$ per month $($payment of $$1,466\mathrm{.}72).$