Johnstone Company is facing several decisions regarding investing and financing

Question

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of S1, PV of $1, FVA of $1. PVA of $1, FVAD of $1 and PVAD of $) (Use appropriste factorls) from the tables provided.) 1. On June 30, 2018, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $19,000 on the purchase date and the balance in five annual installments of $7.000 on each June 30 beginning June 30, 2019. Assuming that an interest rate of 12% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? 2. Johnstone needs to accumulate sufficient funds to pay a $490,000 debt that comes due on December 31. 2023. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2018. 3. On January 1. 2018, Johnstone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $129,000 beginning on January 1, 2018 A 12% interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease liability on January 1, 2018, before any lease payments are made? Complete this question by entering your answers in the tabs below. Required 1Required 2Required 3 On June 30, 2018, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $19,000 on the purchase date and the balance in five annual installments of $7,000 on each June 30 beginning June 30, 2019. Assuming that an interest rate of 12% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? (Round your final ansveers to nearest whole dollar amount.) Show less Present Value Down Payment Value of the equipment

Explanation / Answer

Required 1 n 5 Installment amount $7,000 Interest Rate 12% Present value of installment Years Cashflow Discount factor @ 12% Present Value 1 $7,000 0.892857 $6,250 2 $7,000 0.797194 $5,580 3 $7,000 0.71178 $4,982 4 $7,000 0.635518 $4,449 5 $7,000 0.567427 $3,972 $25,233 Cashflow Amount Present Value Installments 35000 $25,233 Down Payment $19,000 $19,000 Value of the Equipment $44,233 Required 2 $490000 = Annuity*FVAD 1.06^5 $490000 = Annuity*5.9753 1.338226 Annuity = 82004 0.338226 5.637093 5.975319 FVAD refers to future value of annuity due which can be calculated by the formula (1+r)((1+r)^n - 1)/r) 1.06(1.06^5-1)/0.06 this gives us 5.9753 Required 3 Lease Liability = Lease payment*Present value of an annuity due Lease Liability = $129000*8.3658 Lease Liability = $ 1079188 Present Value of Annuity due = (1-(1+r)^-(n-1)/r n= 20, I = 12% Solving in the formula we get 8.3658

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