Question
Question A: Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment
Question A:
Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $1,948,000, or it can make annual payments of $251,800 for 15 years, each payment due on the last day of the year. Which method of payment do you recommend, assuming an expected effective interest rate of 10% during the future period? (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 annual payments:
Recommended payment method Immediate or Annual?
Question B:
Newman Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 5 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 5 years, by conducting some research online, Newman has developed the following estimates.
Engine Overhaul Estimated Cash Outflow | Probability Assessment | ||
$340 | 10% | ||
480 | 30% | ||
840 | 50% | ||
750 | 10% |
How much should Newman Bowie deposit today in an account earning 9%, compounded annually, so that he will have enough money on hand in 5 years to pay for the overhaul? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Despot Amount:
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started