Purchase the annuity investment savings

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Reference no: EM131979199

A Freelance Company sets aside $5,000 every quarter to purchase the leased building it presently occupies. The manager of Freelance would like to purchase the building, which would be valued at $115,000, in five years. The $5,000 that is set aside every quarter would earn annual rate of 8% [Use: PMT{1+i/m)N(M)- 1]/(i/m)} or table. Additionally, a competitor of Freelance would like to purchase the investment and the company seeks your advice on the appropriate price to buy out the annuity from Freelance at the beginning of the investment period. Give your informed opinion on 5a-5c below

a. Would the manager be able to buy the building at the end of the period?

Yes______________ NO_____________________

Justify your response numerically:

b. Based on your computations would the total value of the investment (FVA)

Greater then the required capital at the end of the period by : $______________________

Less than the required capital at the end of the period by: $__________________________

Just equal to the required capital at the end of the period___________________________?

c. If you wish to purchase the annuity investment savings from the manager, what is the most appropriate price would you offer today? [Hint: use PVA formula (PMT{[1-1/(1+i/m)N/M]/i/m)} or the table to support your offer.]

Reference no: EM131979199

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