ACCT 550 WEEK 4

E 6-5 (Computation of Present Value) Present value of an ordinary annuity = R (PVF -)
a) Present value of an ordinary annuity = $30,000 (PVF -) = $30,000 (4.96764) = $149,029.20
b) Present value of an ordinary annuity = $30,000 (PVF -) = $30,000 (8.31256) = $249,376.80
c) Present value of an ordinary annuity = $30,000 [(PVF -) - (PVF -) = $30,000 (5.65022) - (4.11141) = $30,000 x (1.5388) = $46,164.30
Present value of a single sum = $30,000 (PVF -) = $30,000 (0.50663)
Present value of an ordinary annuity = $30,000 (PVF -) (PVF -) = $30,000 (0.50663) (3.03735) = $46,164.3789

E 6-12 (Analysis of Alternatives)
Building A:
Present value = $600,000
Building B:
Present value of an annuity due of 25 periods at 12% x Rent =$69,000 (8.78432)
Present value of an annuity due of 25 periods at 12% = $606,118.08
Building C:
Present value of an ordinary annuity of 25 periods at 12% x Rent = = $7,000 (7.84314) = $54,901.98
Purchase price – Present value of rental = Net present value
Net present value = $650,000 - $54,901.98 =$595,098.02
When comparing these three options, we should choose option 3 which is building C. Building C has the lowest present value which means that the lowest costs.

E 7-2 (Determining Cash Balance)
1. Only checking account balance of $925,000 should be reported as cash.
Certificate of deposit $1,400,000 is a temporary investment, short – term paper (penalties to early conversion to cash). Cash advance to subsidiary of $980,000 is treated as receivables (assumed to