Question 3 Answer the following questions related to Dubois Inc. (Use the tables

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Question 3 Answer the following questions related to Dubois Inc. (Use the tables below.) Dubois Inc. has $601,100 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $93,663 at the end of each year for 10 years, and the other is to receive a single lump-sum payment of $1,559,097 at the end of the 10 years. Which alternative should Dubois select? Assume the interest rate is constant over the entire investment. Dubois Inc. has completed the purchase of new Dell computers. The fair value of the equipment is $818,200. The purchase agreement specifies an immediate down payment of $237,000 and semiannual payments of $71,657 beginning at the end of 6 months for 5 years. What is the interest rate, to the nearest percent, used in discounting this purchase transaction? Interest rate % semiannually Dubois Inc. loans money to John Kruk Corporation in the amount of $830,800. Dubois accepts an 8% note due in 6 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Dubois needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Dubois will receive on the sale of the note? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Amount received on sale of note $ Dubois Inc. wishes to accumulate $1,377,500 by December 31, 2024, to retire bonds outstanding. The company deposits $237,000 on December 31, 2014, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,377,500 is available at the end of 2024. (The quarterly deposits will also earn at a rate of 10%, compounded quarterly.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Annuity of value of quarterly deposits $ Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

1)

So, 2nd alternative is best.

2)

Discount Rate is (4*2 ) = 8% per annum

3)

Present value = 800000/1.05^10 + 32000*1-1/1.05^10/.05

PV = 800000*.6139+32000*7.7217

PV = 491120 + 247096 = $738216 will be received by Dubios

Year Situation 1 Situation 2 PV @10% Situation 1 Situation 2 0 -601100 -601100 1 -601100.00 -601100 1 93663 0.909 85148.18 0 2 93663 0.826 77407.44 0 3 93663 0.751 70370.40 0 4 93663 0.683 63973.09 0 5 93663 0.621 58157.35 0 6 93663 0.564 52870.32 0 7 93663 0.513 48063.93 0 8 93663 0.467 43694.48 0 9 93663 0.424 39722.26 0 10 93663 1559097 0.386 36111.14 601099 Net Present Value -25581.41 -0.61

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