Fraser Company will need a new warehouse in five years. The warehouse will cost

Question

Fraser Company will need a new warehouse in five years. The warehouse will cost $500,000 to build.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

What lump-sum amount should the company invest now to have the $500,000 available at the end of the five-year period? Assume that the company can invest money at ten percent. (Use the appropriate table to determine the discount factor(s).)

What lump-sum amount should the company invest now to have the $500,000 available at the end of the five-year period? Assume that the company can invest money at fourteen percent. (Use the appropriate table to determine the discount factor(s).)

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Explanation / Answer

                   = 500000/(1+0.10)^5 = 310460.7

                   = 500000/(1+0.14)^5 = 259684.3

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