1. You bequeath $2,750,000 to CSUS to provide a monthly stipend for a long term,
ID: 1866667 • Letter: 1
Question
1. You bequeath $2,750,000 to CSUS to provide a monthly stipend for a long term, tenured, engineering research position. The University deposits the money into an investment account that bears 6.37% annually, what is the monthly stipend? Problems 2, 3, and 4 are based upon the following information: An engineer is considering the purchase of an upgrade for a machine that pumps concrete into foundation settings. Option A $35,000 4,000 Est. Annual Cost Savings 8,000 10 Yrs. 8% Option B $19,000 3,000 6,500 10 Yrs. 8% First Cost Salvage Useful Life Interest Rate 2. Which upgrade-option is economically favorable, A or B? 3. What 1st cost will make the unfavorable option competitive with the favored one? 4. The supplier of the unfavorable option cannot reduce the 1st cost BUT the sales staff offers to extend the useful life an additional 5 years. Which option is favorable under these new conditions? 5. The first cost for a newly acquired capital asset is $50,000. This investment will save the company $8,250 annually. There is a one-time additional cost in year-5 of $15,000. The salvage value is $20,000 after its 8-year useful life. Based upon DDB, what is the depreciation charge and book value for the 3d year. Note: Round to the nea dollar.
Explanation / Answer
Ques 1
Since the monthly stipend are being provided for a long term, so this will be treated as a perpetuity.
Present value of perpetuity= cash flow per period/rate of interest
rate of interest per month= annual rate of interest/12 = 6.37%/12= 0.531%
Present value of perpetuity= $2,750,000
Cash flow per month= Monthly interest rate x Present value of perpetuity
Therefore, stipend per month= 2,750,000 x 0.531% = $14,597.92
Answer: Monthly stipend will be $14,597.92
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