Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

Johnstone Company is facing several decisions regarding investing and financing

ID: 2709122 • Letter: J

Question

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

  

On June 30, 2016, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $26,000 on the purchase date and the balance in five annual installments of $9,000 on each June 30 beginning June 30, 2017. Assuming that an interest rate of 11% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment?

     

Johnstone needs to accumulate sufficient funds to pay a $560,000 debt that comes due on December 31, 2021. The company will accumulate the funds by making five equal annual deposits to an account paying 8% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2016.

     

On January 1, 2016, Johnstone leased an office building. Terms of the lease require Johnstone to make 10 annual lease payments of $136,000 beginning on January 1, 2016. An 11% interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease liability on January 1, 2016,before any lease payments are made?

     

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Explanation / Answer

1.

2.Required amount=560,000at the end of December 31 ,2021

starting date December 31,2016

Total installments =5

interest rate=8%

As per above data required compounded future value factor is 5.8666

Requre yearly deposit =560,000/5.8666=$95455.63

3.Calculate present value of lease liability

Total installments=10

Installment amount=136000

Interest rate =11%

As per above data presnt value of compounded factor is 5.8892

Lease liabulity=$136000*5.8892

=$800931.2

year cash flow PVF@11% present value 0 26000 1 -26000 1 9000 0.900901 8108.108108 2 9000 0.811622 7304.601899 3 9000 0.731191 6580.722432 4 9000 0.658731 5928.578767 5 9000 0.593451 5341.061953 NPV 7263.073159
Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Chat Now And Get Quote