The following cases are each independent of the others.
Required:
1. Lyndon Wilson places $5,000 in a savings account that pays 3 percent. Suppose Lyndon leaves the original deposit plus any interest in the account for two years. How much will Lyndon have in savings after two years?
2. Suppose that the parents of a 12-year-old son want to have $50,000 in a fund six years from now to provide support for his college education. How much must they invest now to have the desired amount if the investment can earn 4 percent? 6 percent? 8 percent?
3. Palmer Manufacturing is asking $500,000 for automated equipment, which is expected to last six years and will generate equal annual net cash inflows (because of reductions in labor costs, material waste, and so on). What is the minimum cash inflow that must be realized each year to justify the acquisition? The cost of capital is 8 percent.