Largo Freightlines plans to build a new garage in three years to have more space
ID: 2358526 • Letter: L
Question
Largo Freightlines plans to build a new garage in three years to have more space for repairing its trucks. The garage will cost $400,000.
Click here to view Exhibit 11B-1, to determine the appropriate discount factor using tables.
What lump-sum amount should the company invest now to have the $400,000 available at the end of the three-year period? Assume that the company can invest money at eight percent. (Round discount factor to 3 decimal places, intermediate and final answer to the nearest dollar amount.)
What lump-sum amount should the company invest now to have the $400,000 available at the end of the three-year period? Assume that the company can invest money at twelve percent. (Round discount factor to 3 decimal places, intermediate and final answer to the nearest dollar amount.)
Click here to view Exhibit 11B-1, to determine the appropriate discount factor using tables.
Explanation / Answer
(1a) Discount factor 3 years at 8% = 0.794 Amount to be invested = 400000 x 0.794 = $317600 (1b) Discount factor 3 years at 12% = 0.7912 Amount to be invested = 400000 x 0.712 = $284800 Hope this helps!
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