BEG-1

Jozy Altidore invested $6,000 at 5% annual interest, and left the money invested without
withdrawing any of the interest for 12 years. At the end of the 12 years, Jozy with- drew the
accumulated amount of money. (a) What amount did Jozy withdraw, assuming the investment earns
simple interest? (b) What amount did Jozy withdraw, assuming the investment earns interest
compounded annually?
BRIEF EXERCISE … BEG – 1
(a) $9,600

(b) $10,775.16

BEG-3
Liam Company signed a lease for an office building for a period of 12 years. Under the lease
agreement, a security deposit of $9,600 is made. The deposit will be returned at the expiration of the
lease with interest compounded at 4% per year. What amount will Liam receive at the time the lease
expires?
BRIEF EXERCISE … BEG – 3

Liam will receive 15,369.91

BEG-4
Bates Company issued $1,000,000, 10-year bonds and agreed to make annual sink- ing fund deposits
of $78,000. The deposits are made at the end of each year into an account paying 6% annual interest.
What amount will be in the sinking fund at the end of 10 years?
BRIEF EXERCISE … BEG – 4

The sinking Fund amount will be 1,028,101.62

BEG-8
(a) What is the present value of a single amount of $25,000 due 9 years from now, discounted at
10%.
(b) What is the present value of a series of $25,000 payments, to be received at the end of each of 6
years, discounted at 9%?
BRIEF EXERCISE … BEG – 8
(a) 10,602.5

(b) 112,148
BEG-9
Messi Company is considering an investment that will return a lump sum of $900,000 6 years from
now. What amount should Messi Company pay for this investment to earn an 8% return?
BRIEF EXERCISE … BEG – 9
Messi Company should therefore invest 567,153 to have $900,000 in six years.

BEG-11
Robben Company is considering investing in an annuity contract that will return $40,000 annually at
the end of each year for 15 years. What amount should Robben Company pay for this investment if it
earns an 8% return?
BRIEF EXERCISE … BEG – 11

Robben Company should pay 342,379.2 for this annuity contract.

BEG-17
Frazier Company issues a 10% (annual = 5% semi-annual), 5-year mortgage note on January 1,
2017, to obtain financing for new equipment. Land is used as collateral for the note. The terms
provide for semiannual (5 yrs x 2 ea = 10 periods) installment payments of $48,850. What are the
cash proceeds received from the issuance of the note?
BRIEF EXERCISE … BEG - 17
Frazier Company should receive 377,206.51 from the issuance of the note.

BEG-22
Barney Googal owns a garage and is contemplating purchasing a tire retreading machine for
$12,820. After estimating costs and revenues, Barney projects a net cash inflow from the retreading
machine of $2,700 annually for 7 years. Barney hopes to earn a return of 9% on such investments.
What is the present value of the retreading operation? Should Barney Googal purchase the retreading
machine?
BRIEF EXERCISE … BEG - 22

The tire retreading machine present value of the future cash flows is 13,588.97.
BEG-23 Snyder Company is considering purchasing equipment. The equipment will produce the
following cash inflows: Year 1, $25,000; Year 2, $30,000; and Year 3, $40,000. Snyder requires a
minimum rate of return of 11%. What is the maximum price Snyder should pay for this equipment?
BRIEF EXERCISE … BEG - 23

To achieve a minimum rate of return of 11%, Snyder Company should pay no more than

122,989.8.