(Appendix A) Future Value, Present Value

The following cases are each independent of the others.

Required:

1. Sam Lilliam places $5,000 in a savings account that pays 3 percent. Suppose Sam leaves the original deposit plus any interest in the account for two years. How much will Sam have in savings after two years? If required, round your answer to the nearest cent. (Note: the present value tables cannot be used to answer this question; you must instead use the formula that is presented in the appendix to the chapter.) $_____________

The present value tables provided in Exhibit 19B.1 and Exhibit 19B.2 must be used to solve the following problems.

2. Suppose that the parents of a 12-year-old son want to have $80,000 in a fund six years from now to provide support for his college education.

How much must they invest now to have the desired amount if the investment can earn 4 percent? $_______________

How much must they invest now to have the desired amount if the investment can earn 6 percent? $_______________

How much must they invest now to have the desired amount if the investment can earn 8 percent? $________________

3. Killian Manufacturing is asking $500,000 for automated equipment, which is expected to last six years and will generate equal annual net cash inflows (because of reductions in labor costs, material waste, and so on). What is the minimum cash inflow that must be realized each year to justify the acquisition? The cost of capital is 8 percent. Round your final answer to the nearest dollar. $_______________