Q1

(a) Eyeview Systems Sdn Bhd., a maker of electronic surveillance equipment, is considering selling to a well-known hardware chain the rights to market its home security system. The proposed deal calls for payments of RM45,000 and RM22,000 at the end of years 1 and 2 and for annual year-end payments of RM14,500 in years 3 through 7. A final payment of RM12,000 would be due at the end of year 8.

(i) Calculate the value of this series of payments if Eyeview applies a required rate of return of 12%. (ii) A second company has offered Eyeview a one-time payment of RM120,000 for the rights to market the home security system. Determine whether Eyeview should accept this offer.

(b) (i) AZX company intends to deposit RM30,000 per year in a fixed deposit account for the next 10 years, and the fixed deposits pays an annual interest rate of 8%. He has three options to choose on the depositing frequency. RM30,000 is deposited annually and the fixed deposits pays interest annually. RM15,000 is deposited semiannually and the fixed deposits pays interest semiannually. RM7,500 is deposited quarterly and the fixed deposits pays interest quarterly. Compute the future value that AZX company will have at the end of 10 years for each option.

(iii) Recommend which option should AZX choose if AZX company wishes to receive the highest amount taking into consideration of the effect of more frequent deposits and compounding of interest on the future value of an annuity.

(c) Aziah, a 25 year old university graduate, wishes to retire at age 55. To supplement other sources of retirement income, she can deposit RM6,000 each year into a tax deferred individual retirement fund. The retirement fund will earn a 15% return over the next 30 years.

(i) Determine the amount that will be accumulated by the end of her fifty fifth year if Aziah makes annual end of year RM6,000 deposits into the fund

(ii) Find the amount that will be accumulated by the end of her fifty fifth year if Aziah decides to wait until age 35 to start making annual end of year RM6,000 deposits into the fund

(iii) Discuss, using the finding in Q1(c)(i) and Q1(c)(ii) the impact of delaying making deposits into the retirement fund for 10 years (age 25 to age 35) on the amount accumulated by the end of Aziahs fifty fifth year.

(iv) Analyse the effect on the future value accumulated by the end of Aziahs fifity fifth year for both situation . assuming that Aziah makes all deposits at the beginning, rather than the end, of each year.