Use the tools introduced in the chapter to answer the following questions. You have to decide which tool to use in each case. Explain your conclusions. In all cases assume the interest or discount rate is 10 percent:

a. A company sells a piece of equipment to a customer for \($250,000\). The company agrees to accept payment in full in five years. The agreement between the parties specifies that the buyer won’t be charged interest. How much revenue should the company recognize for this sale?

b. A contest advertises that the winner will get \($5,000,000\) paid in equal instalments of

\($250,000\) a year for 20 years, with the first payment being made one year from the date the contest winner is announced. What is the “real” value of the prize?

c. Mr. Insulacco purchased an investment certificate for \($10,000\) in honour of the birth of his niece. How much will Mr. Insulacco’s niece receive when the certificate matures in eight years?

d. An investor has the opportunity to invest in one of three investments. In each case the investor must invest \($10,000\). The first investment will pay the investor \($35,000\) at the end of year 5. The second investment will pay the investor \($2,000\) in one year, \($4,000\) in two years, \($6,000\) in three years, \($8,000\) in four years, and \($10,000\) in five years. The third alternative will pay the investor \($6,000\) at the end of each of the next five years.

Which investment would you recommend?

e. An investor purchases a \($10,000\) investment certificate that pays compounded semi-annual interest. How much will the investor receive when the certificate matures in 10 years?

f. An investor has the opportunity to receive \($5,000\) per year for the next 25 years. What is the most the investor should pay for this investment?

g. You are offered a choice of receiving \($1,000\) today or \($1,500\) in three years. Which alternative would you prefer?