Fraser Company will need a new warehouse in eight years. The warehouse will cost $410,000 to build.

Exercise 13A-4 Basic Present Value Concepts [LO13-7]

Fraser Company will need a new warehouse in eight years. The warehouse will cost $410,000 to build.

Required:

What lump-sum amount should the company invest now to have the $410,000 available at the end of the eight-year period? Assume that the company can invest money at:

 

Explanation

From Exhibit 13B-1, the factor for 12% for 8 periods is 0.404. Therefore, the company must invest:

$410,000 × 0.404 = $165,640

From Exhibit 13B-1, the factor for 13% for 8 periods is 0.376. Therefore, the company must invest:

$410,000 × 0.376 = $154,160

Thanks