Answer To: Charles Sturt University Subject Outline ACC XXXXXXXXXXS I-9 February 2018-Version 1 Page of 1 22...
Shakeel answered on Apr 08 2020
Answer 1
(a)
End of year
Cash flow ($) (A)
PV factor@9% (B)
PV (A*B)
1
400
0.9174
366.96
2
800
0.8417
673.36
3
500
0.7722
386.10
4
400
0.7084
283.36
5
300
0.6499
194.97
Total 1,904.76
Required payment = $1,904.76
(b)
The given data is given as below -
Loan amount = $100,000
Interest rate per annum = 10%
Interest rate per quarter = 10/4
= 2.50%
No. of payments = 20 (quarters)
Let the quarterly payment be C
Therefore,
C*PVIFA (2.50%, 20)*(1 + 0.0250) = 100,000
From the PVIFA table, the value of PVIFA (2.50%, 20) is given as 15.5892
So,
C*15.5892*1.025 = 100,000
C*15.9789 = 100,000
C = $6,258.24
Quarterly payment is $6,258.24
(c)
Lottery prize = $200,000
Interest rate per annum compounded monthly = 10%
Monthly interest rate = 10/12
= 0.833%
No. of monthly payment = 150 (months)
Here, the monthly payments start at the end of 2nd year. Therefore, we must have to bring the initial lump sum and PV of monthly cash flows at the same time point i.e. at the end of 2nd year and then we would calculate the monthly payment
Since, first payment is due exactly after 2 years..
The value of prize at the end of 2nd year = 200,000*(1 + 0.00833)24
= $244,078.21 ………………(i)
Let the monthly payment be C
Since, the first monthly payment is made exactly after 2 years i.e.at the beginning of 3rd yr
Therefore, the value of payments at the beginning of 3rd year or at the end of 2nd year is
C*PVIFA (0.833%,150)*(1+0.0083) …………………….(ii)
Equating both the equations (i) and (ii)
C*PVIFA (0.833%,150)*(1+0.00833) = $244,078.21
The value of PVIFA (0.833%, 150) is given as 15.5892
Therefore,
C*85.44*1.00833 = 244,078.21
C*86.1942 = 244,078.19
C = 244,078.19 / 86.1942
C = $2,833.22
Hence, the monthly payment would be $2,833.22
Answer 2
(i)
%
8%
6%
7%
Year
0
1
2
3
4
5
6
7
8
9
10
CF i
$0
$0
+$6,500
+$1,500
$0
$0
-$2,500
$0
$0
+$10,000
$0
(ii)
The discounting value of cash flow is determined by the formula - Ʃ CFt / (1 + k)t
Where, k is the interest rate and t is the time period. While,
Value of the cash flow at Time 1 = 0/(1+0.08)
= 0
Value of the cash flow at Time 5 = 0/(1+0.08) + 6,500/(1+0.08)2 + 1,500/(1+0.06)3 + 0/(1+0.06)4 +
0/(1+0.06)5
= 0 + 5,572.72 + 1,259.43 + 0 + 0
= $6,832.15
Value of the cash flow at Time 10= 0/(1+0.08) + 6,500/(1+0.08)2 + 1,500/(1+0.06)3 + 0/(1+0.06)4 + 0/(1+0.06)5-2,500/(1+0.06)6 + 0/(1+0.06)7 + 0/(1+0.06)8 + 10,000/(1+0.07)9 + 0/(1+0.07)10
= 0 + 5,572.72 + 1,259.43 + 0 + 0 -1,762.40 + 0 + 0 + 5,439.34 + 0
= $10,509.08
Answer 3
Corporate tax is the tax imposed by the government on the earnings of companies. It is a significant source of government’s revenue that is used in several social works like construction of roads, hospitals, school and colleges, providing health services, disaster management and so on. The rate of corporate tax varies with country to country. The appropriate tax rate is determined by several factors like current economic condition, business environment, growth, unemployment, fiscal debt etc. While, higher corporate tax may raise government’s income, reduce fiscal deficit and high benefit of tax shield to corporate; its negative implication includes disappointing the business and prevents the new entrants in establishing their own business houses. Similarly, lowering of corporate tax rate may reduce the government’s income and sluggish the economy but at the same time it may bring the large capital to business, boost the existing...