Question 5
Assume that Wal-Mart Stores, Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of 12,000 square yards. Bid A: A surface that costs $5.75 per square yard to install. This surface will have to be replaced at the end of 5 years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface. Bid B: A surface that costs $10.75 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 12 cents per square yard. Click here to view factor tables Compute present value of the bids. You may assume that the cost of capital is 12%, that the annual maintenance expenditures are incurred at the end of each year, and that prices are not expected to change during the next 10 years. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Present value of outflows for Bid A Present value of outflows for Bid B $ Which bid should be accepted by Wal-Mart. Wal-Mart should accept Table 6.1 FUTURE VALUE OF 1 (FUTURE VALUE OF A SINGLE SUM) FVFi = (1 i)" (n) Periods 2% 24% 3% 4% 5% 6% 1.02000 1.02500 1.03000 1.04000 1.05000 1.06000 1.06090 2 1.04040 1.05063 1.08160 1.10250 1.12360 1.09273 3 1.06121 1.07689 1.12486 1.15763 1.19102 1.16986 4 1.08243 1.10381 1.1255 1.21551 1.26248 5 1.10408 1.13141 1.15927 1.21665 1.27628 1.33823 6 1.12616 1.15969 1.19405 1.26532 1.34010 1.41852 7 1.14869 1.18869 1.22987 1.31593 1.40710 1.50363 1.17166 8 1.21840 1.26677 1.36857 1.47746 1.59385 1.55133 1.19509 1.24886 1.30477 1.42331 1.68948 1.62889 10 1.21899 1.28008 1.34392 1.48024 1.79085 1.24337 1.38423 11 1.31209 1.53945 1.71034 1.89830 1.60103 12 1.26824 1.34489 1.42576 1.79586 2.01220 (n) Periods 8% 9% 10% 11% 12% 15% 1.08000 1.09000 1.10000 1.1000 1.12000 1.15000 1 1.23210 1.16640 1,18810 1.21000 1.25440 1.32250 1.25971 1.29503 1.33100 1.36763 1.40493 1.52088 3 1,36049 1.41158 1.46410 1.51807 1.57352 1,74901 4 1.53862 1.46933 1.6105 1.68506 1.76234 2.01136 5 1.87041 1.58687 1.67710 1.77156 1.97382 2.31306 6 2.07616 2.66002 1.71382 1.82804 1.94872 2.21068 7 1.85093 1.99256 2.14359 2.30454 2.47596 3.05902 1.99900 2.17189 2.35795 2.55803 2.77308 3.51788 2.15892 2.36736 2.59374 2.83942 3.10585 4.04556 10 2.33164 2.58043 2.85312 3.15176 3.47855 4,65239 11 3.13843 2.51817 2,81267 3.49845 3.89598 5.35025 12 2.71962 3,06581 3.45227 3.88328 4.36349 6.15279 13 7.07571 2.93719 3.34173 3.79750 4.31044 4.88711 14 2. PRESENT VALUE OF 1 TABLE. Contains the amounts that must be deposited now at a specified rate of interest to equal 1 at the end of a specified number of periods (Table 6.2) Table 6.2 PRESENT VALUE OF 1 (PRESENT VALUE OF A SINGLE SUM PVF 1 (1+ (1i)| (n) Periods 2% 22% 3% 4% 5% 6% 1 98039 .97561 97087 96154 .95238 94340 2 .96117 .95181 .94260.92456 .90703 89000 3 .94232 92860 91514 88900 86384 83962 4 .92385 .90595 .88849.85480 .82270 79209 5 9057388385 86261 82193 78353 74726 70496 6 88797 86230 .83748 .79031 .74622 7 .87056 .84127 .81309 .75992 .71068 66506 .85349.82075 78941 73069 .67684 62741 9 83676.80073 76642 .70259 .64461 59190 74409.67556 .61391 .55839 10 .82035 .78120 9% 10% 11% 12% 15% (n) Periods 8% 1 .92593 .91743.90909 .9009089286 .86957 2 .85734 84168 82645 .81162 .79719 .75614 793837721875132 .73119 .71178 .65752 4 73503 70843.68301 65873 .63552 .57175 5 .68058 64993 .62092 .59345 .56743 .49718 6 .6301759627 .56447 .53464 .50663 .43233 58349.54703 51316 .48166 .45235 37594 8 54027 5018746651 .43393 .40388 32690 50025 46043 .42410 .39092 .36061 28426 10 46319.4224138554 .35218 32197 .24719 3. FUTURE VALUE OF AN ORDINARY ANNUITY OF 1 TABLE. Contains the amounts to which periodic rents of 1 will accumulate if the payments (rents) are invested at the end of each period at a specified rate of interest for a specified number of periods (Table 6.3) Table 6.3 FUTURE VALUE OF AN ORDINARY ANNUITY OF 1 (1+i- FVF-OA = ni (n) Periods 2% 2/% 3% 4% 5% 6% 1 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 2,02000 2.02500 2,03000 2.04000 2.05000 2.06000 3.07563 3.06040 3.09090 3.12160 3.15250 3.18360 4 4.18363 4.12161 4.15252 4.24646 4.31013 4.37462 5.30914 5 5.20404 5.25633 5.41632 5.52563 5.63709 6 6.30812 6.38774 6.46841 6.63298 6.80191 6.97532 7 7.54743 7,66246 7.43428 7.89829 8.14201 8.39384 8.58297 8.73612 8.89234 9.21423 9.54911 9.89747 11.02656 9 9.75463 9.95452 10.15911 10.58280 11.49132 11.20338 13.18079 10 10.94972 11.46338 12.00611 12.57789 (n) Periods 8% 9% 10% 11% 12% 15% 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1 2.15000 2.08000 2.09000 2.10000 2.11000 2.12000 2 3.37440 3.47250 3.24640 3.27810 3.31000 3.34210 3 4.77933 4 4,50611 4.57313 4.64100 4.70973 4,99338 5.86660 5.98471 6.10510 6.22780 6.35285 6.74238 5 7.33592 7.52334 7.71561 7.91286 8.11519 8.75374 6 8.92280 9.20044 9.48717 9.78327 10.08901 11.06680 7 13.72682 10.63663 11.02847 11.43589 11.85943 12.29969 8 13.02104 12.48756 13.57948 14.16397 14.77566 16,78584 9 15.19293 20.30372 14.48656 15.93743 16.72201 17.54874 10 4. PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 TABLE. Contains the amounts that must be deposited now at a specified rate of interest to permit withdrawals of 1 at the end of regular periodic intervals for the specified number of periods (Table 6.4) Table 6.4 PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 1- (1+0 PVF-OAi (n) Periods 2% 2% 3% 4% 5% 6% 95238 94340 1 98039 97561 97087 .96154 1,94156 1.91347 1.88609 1.83339 2 1.92742 1.85941 2,77509 2.72325 3 2,88388 2,85602 2.82861 2.67301 4 3.54595 3.80773 3.76197 3.71710 3.62990 3.46511 5 4.64583 4.57971 4.32948 4.71346 4.45182 4.21236 6 5.60143 5.50813 5.41719 5.24214 5.07569 4.91732 6.23028 5.78637 7 6.47199 6.34939 6.00205 5.58238 7,32548 7.17014 7.01969 6.73274 6.46321 6.20979 7.43533 9 8.16224 7.97087 7.78611 7.10782 6.80169 10 8.98259 8.75206 8.53020 8.11090 7.72173 7.36009 8% 9% 10% 11% 12% 15% (n) Periods .90909 .86957 92593 91743 90090 .89286 1.78326 1.75911 1.73554 1.71252 1.69005 1.62571 2 2.57710 2.53130 2.48685 2.44371 2.40183 2.28323 3 3.10245 4 3.31213 3.23972 3.16986 3.03735 2.85498 3.99271 3.88965 3.79079 3.69590 3.60478 3.35216 5 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 6 5.03295 5.20637 4.86842 4.71220 4.56376 4.16042 7 5.53482 5.74664 5.33493 5.14612 4.96764 4.48732 4.77158 6.24689 5.99525 5.75902 5.53705 5.32825 5.65022 6.71008 6.41766 6.14457 5.88923 5.01877 10 5. PRESENT VALUE OF AN ANNUITY DUE OF 1 TABLE. Contains the amounts that must be deposited now at a specified rate of interest to permit withdrawals of 1 at the beginning of regular periodic intervals for the specified number of periods (Table 6.5) Table 6.5 PRESENT VALUE OF AN ANNUITY DUE OF 1 1- (1+-1 PVF-ADn 3% 5% (n) Periods 2% 2/4% 4% 6% 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.97087 2 1.98039 1.97561 1.96154 1.95238 1.94340 2.91347 3 2.94156 2.92742 2,88609 2.85941 2.83339 3.85602 4 3.88388 3.82861 3.77509 3.72325 3.67301 5 4.80773 4.76197 4.71710 4.62990 4.54595 4.46511 6 5.71346 5.64583 5.57971 5.45182 5.32948 5.21236 7 6.60143 6.50813 6.41719 6.24214 6.07569 5.91732 8 7.47199 7.34939 7.23028 7,00205 6.78637 6.58238 7.73274 8.32548 8.17014 8.01969 7.46321 7.20979 10 9.16224 8.97087 8.78611 8.43533 8.10782 7.80169 (n) Periods 8% 9% 10% 11% 12% 15% 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1 1.89286 1.92593 1.91743 1.90909 1.90090 1.86957 2 2.78326 2.75911 2.73554 2.71252 2.69005 2.62571 3 3.44371 4 3.57710 3.53130 3.48685 3.40183 3.28323 4.31213 4.23972 4.16986 4.10245 4.03735 3.85498 5 4.35216 4.99271 4.88965 4.79079 4.69590 4.60478 6 5.23054 5.62288 5.48592 5.35526 5.11141 4.78448 7 5.86842 8 6.20637 6.03295 5.71220 5.56376 5.16042 5.96764 5.48732 6,74664 6.53482 6.33493 6.14612 7.24689 6.99525 6.75902 6.53705 6.32825 5.77158 10
