Time Value of MoneyEXAMPLES AND PRACTICE PROBLEMSTime Value of Money Problems – Homework #1Acct 414 Prof. Teresa GordonTime Value of MoneyEXAMPLES AND PRACTICE PROBLEMSThe following problems involve the business activities of Palouse Paper Industries. Use the compound interest tables in the textbook or a financial calculator or spreadsheet to work the following problems. 1-1. On July 1, Year 1, PPI issued $10 million of 20-year, 8% bonds, which paid interest semiannually. The bonds were issued to yield 10%. What were the proceeds of the bond issue?1-2. On April 1, Year 1, PPI purchased a forklift by paying $5,000 down and $5,000 at the beginning of each of the next 19 calendar quarters. What was the cost of the forklift for financial accounting purposes if the rate of interest agreed upon was 16% compounded quarterly?1-3. PPI needs to accumulate a $5 million trust fund with Idaho First Bank and Trust for the retirement of a bond issue in 10 years. The company plan to make 20 equal deposits of $186,078.54, starting in six months, to accumulate the $5 million fund. What annual interest rate isIdaho First Bank & Trust paying on the balance of the fund?1-4. PPI also wants to accumulate $500,000 on December 31, Year 10, to retire some preferred stock. The company deposits $125,000 in a savings account on January 1, Year 1, which will earn interest at 6% compounded quarterly. PPI's controller asks you to figure out what additional amount PPI should deposit at the end of each quarter for 10 years to have the $500,000 available at the end of Year 10. The periodic deposits will also earn interest at the same 6% rate.1-5. PPI received a promissory note from a customer in the amount of $300,000. The note calls for payment of $100,000 of principal at the end of each year, starting in three years, plus interest at the rate of 14% per year on the unpaid balance. Only interest is due at the end of the first two years. To accelerate the collection, PPI immediately discounts the note with Idaho First Bank & Trust which is charging a 12% annual interest rate. How much will PPI receive in cash from the bank?1-6. PPI wants to make five equal annual savings account deposits beginning June 1, Year 4, in order to be able to withdraw $75,000 at six annual intervals beginning June 1, Year 9. The amount on deposit with Idaho First Bank & Trust will earn 8% per annum until the account is exhausted. The controller asks you to compute the amount of the deposits that will be needed.1-7. On June 30, Year 3, PPI purchased a machine for $100,000. The downpayment was $15,000, and the balance will be paid in 48 equal monthly payments, including interest at 18% compounded monthly. What is the amount of the monthly payment if the first payment is due one month from the date of the purchase?1-8. On April 1, Year 2, PPI made a deposit of $100,000 in a fund and left the fund undisturbed for four years to earn compound interest at a rate which did not change during the four-year period. At the end of the four years, the fund had accumulated to $132,088.60. If interest was compoundedquarterly, what was the rate of interest earned each quarter? Page 1 of 6Acct 414 Prof. Teresa GordonAssume you are confronted with the following happy circumstances. Use your knowledge of compound interest and present values to choose the alterative which makes the most sense from a financial point of view. Please do the computations even though the answer seems "obvious."2-1. A distant relative has contacted you with a desire to help you get started with your career. She offers you your choice of $27,000 to be received in one of the following three patterns:(1) One thousand dollars at the end of each of the first three years, starting one year from now; $3,000 at the end of each of the next three years; and $5,000 at the end of each of the last three years. Your relative suggests that this might be preferable because you are young and will need more money as you get older, not only because you will learn to spend more, but also because inflation will increase your cost of living.(2) Three thousand dollars at the end of each of the next nine years, starting one year from now. Your relative points out that this option offers you the advantage of a steady cash flow.(3) Five thousand dollars at the end of each of the first three years, starting one year from now; $3,000 at the end of each of the next three years; and $1,000 at the end of each of the last three years. Your relative points out that she would not recommend this option to you because it would give you an excess of cash flow during the first three years which might raise your standard of living so that it would hurt to get less in the later years. She also points out that you could probablyearn only 6% per annum while she can earn 10% annually in a bank in Singapore.2-2. You have just been notified that you have won the jackpot in the Canadian lottery. You can accept your winnings in one of the following cashflow streams. Assume you are a Canadian citizenand therefore not liable for any income taxes on the winnings. Compare the alternatives assuming a long-term average interest rate on any investments of 8%. Would your answer change if you could earn only 6% or as much as 10% interest? [In other words, compare the options using 3 different interest rates](1) $1,000,000 per year for ten years, first payment received immediately. (2) $550,000 per year for twenty years, first payment received immediately. (3) $70,000 per month for the next 15 years, beginning at the end of the first month. Note: Present Value of Ordinary Annuity interest factors for n=180 are as follows: 1/2 % 118.5042/3 % 104.6405/6 % 93.057Page 2 of 6Acct 414 Prof. Teresa GordonAssume that you were recently hired at Genessee Engineering Consultants. The controller describes several recent transactions and asks you to prepare amortization or accumulation tables for each.3-1. Today, we purchased a machine for $54,173. We paid $5,000 down and agreed to make six equal payments, including interest at 12% compounded semiannually, every six months starting six months from now.3-2. We will need $200,000 five years from now to replace our elevator. We want to deposit fiveequal amounts in a fund starting one year from now so that we will have the money we need in fiveyears. We have arranged to invest the money with Idaho First Bank and Trust at 8% compounded annually.3-3. On January 1