Ruggiero Limousine Service is considering purchasing a new limo for $80,000. The limo will generate cash flow evenly over its 6-year life and have no salvage value. How much annual cash flow must the limo generate to provide Ruggiero Limousine with its required 15 percent rate of return? HINT: The number of periods and interest rate are known. Experiment with different payment amounts per period

Section Used		Amount/payment
Interest rate		Periods
Answer		When paid

Michigan offers a $1,000,000 lottery. It has a drawing for the lottery when sufficient funds have accumulated. The winner receives $50,000 each year for 20 years. The first check is awarded immediately to the winner. The remaining 19 checks are issued annually. If Michigan earns 8 percent interest on the funds, how much must it have on hand before it can hold the drawing?

Section used		Amount/payment
Interest rate		Periods
Answer		When paid

You have recently received an inheritance of $20,000 from a professor who always said you were a favorite student. There is one minor string attached - you have to invest it and cannot have a penny of it until it builds to $100,000. Then it is all yours! You immediately invest the $20,000 in a trust frund that guarantees an 8 percent return every year. How long do you have to wait until your at $100,000 (to the nearest whole year)? HINT: Enter the inheritance and the interest rate in the appropriate cells. Then enter different periods until you find the one that puts the trust fund over $100,000

Section Used		Amount/period
Interest rate		Periods
Answer

Crabtree Corp agreed on Dec 31 to buy a backhoe from Digger Inc by making annual payments on Dec 31 for the next 4 years. The first two payments will be for $15,000 each, and the last two will be $8,000. If the implicit interest rate charged by Digger Inc is 8 percent, what is the cash equivalent cost today of the backhoe? Assume the first payment is made today.

Section Used		Amount/payment
Interest rate		Periods
Answer		When paid

Section Used		Amount/payment
Interest rate		Periods
Answer		Final Answer

In payment for land purchased today for $200,000. Dancer Corp has agreed to make five equal payments, beginning one year from today. Each payment is to be first applied to the 10 percent annual interest and then applied to the balance. What should the annual payment be to retire the debt in five years?

Section Used		Amount/payment
Interest rate		Periods
Answer		When paid

Cruncher Inc sold a supercomputer today. The terms of the sale call for Cruncher to receive three annual payments of $230,000 each, beginning one year from today. Assuming that the computer is worth $600,000, what interest rate (to the nearest tenth of a percent) will Cruncher be receiving?

Section used		Amount/payment
Interest rate		Periods
Answer		When paid

Cameron and Melissa recently had a baby boy. They estimate that 4 years of college will cost $30,000 per year by the time there son is 18. The $30,000 will be paid at the beginning of each school year. How much must Cameron and Melissa invest today in a fund that will yield 9 percent annually in order to be able to send their son to college in 18 years?

Section Used		Amount /payment
Interest rate		periods
answer		when paid

Section Used		Amount/payment
interest rate		periods
answer		final answer

Cameron and Melissa do not have enough money to fully fund the trust today with only one payment. Instead, they plan on making 18 equal annual installments to the fund. They will make the first payment on their sons first birthday. What is the amount of the annual payment (rounded to the nearest whole dollar) needed to fund their son's college?

Section used		Amount/payment
interest rate		periods
answer		when paid