Problem 6-7 Answer the following questions related to Blossom Inc. Click here to

Question

Problem 6-7 Answer the following questions related to Blossom Inc. Click here to view factor tables Your answer is correct. Blossom Inc. has $555,100 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $73,659 at the end of each year for 12 years, and the other is to receive a single lump-sum payment of $1,742,142 at the end of the 12 years. Which alternative should Blossom select? Assume the interest rate is constant over the entire investment. Iternative Tw Your answer is incorrect. Try again. Blossom Inc. has completed the purchase of new Dell computers. The fair value of the equipment is $750,200. The purchase agreement specifies an immediate down payment of $202,800 and semiannual payments of $67,489 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 x Your answer is incorrect. Try again. Blossom Inc. loans money to John Kruk Corporation in the amount of $831,200. Blossom accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Blossom 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 Blossom 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 831200

Explanation / Answer

2.

($750200 - $202800) = $67489 (PV of annuity for 10 periods)

PV of annuity for 10 periods = $547400 / $67489

= 8.1109

PV of annuity of 4% for 10 periods is 8.1109.

3.

PV of annuity = $831200 * 8% (annuity value of 5% for 10 years)

= $33248 * 7.72173

= $256732.08

Present value = $831200 * 0.61391 ( pv of 5% for 10 years)

= $510282

Combined present value = $767014 .08 ($256732.08 + $510282).

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