Chapter 9, Problem 9.13E

Computing Four Present Value Problems

On January 1 of this year. Shannon Company completed the following transactions (assume a 10% annual interest rate):

1. a. Bought a delivery truck and agreed to pay $60,000 at the end of three years.
2. b. Rented an office building and was given the option of paying $10,000 at the end of each of the next three years or paying $28,000 immediately.
3. c. Established a savings account by depositing a single amount that will increase to $90,000 at the end of seven years.
4. d. Decided to deposit a single sum in the bank that will provide 10 equal annual year-end payments of $40,000 to a retired employee (payments starting December 31 of this year).

Required (show computations and round to the nearest dollar):

1. 1. In (a), what is the cost of the truck that should be recorded at the time of purchase?
2. 2. In (b), which option for the office building results in the lowest present value?
3. 3. In (c), what single amount must be deposited in this account on January 1 of this year?
4. 4. In (d), what single sum must be deposited in the bank on January 1 of this year?