Question

Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently EV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.) 1. On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $12.000 on the purchase date and the balance in six annual installments of $10,000 on each June 30 beginning June 30, 2022 Assuming that an interest rate of 12% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? 2. Johnstone needs to accumulate sufficient funds to pay a $420,000 debt that comes due on December 31, 2026. 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 of the first deposit is made on December 31, 2021 3. On January 1, 2021 Johnstone leased on office building Terms of the lease require Johnstone to make 20 annual lease payments of $122 000 beginning on January 1, 2021 A 1296 interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease lily on January 1, 2021, before any lease payments are made?

Answer 1

Part 1

Table values are based on
n=	6
i=	12%
Cash flow	Amount	Present value
Installments	10000	41141
Down payment	12000	12000
Value of the equipment		$53141

Present value of ordinary annuity of $1 for n=6, i=12% is 4.11141

Present value of installment = 10000*4.1141

Part 2

Table or calculator function:	FVAD of $1
Future value:	$420000
n =	5
i =	8%
Deposit:	$66289

FVAD of $1 for n = 5, i =8% is 6.33593

Deposit = 420000/6.33593 = $66289

Part 3

Table or calculator function:	PVAD of $1
Future value:	$122000
n =	20
i =	12%
Laibility:	$1020625

PVAD of $1 for n = 20, i =12% is 8.36578

Liability = 122000*8.36578 = $1020625