Reference no: EM131105586
(Various Time Value Situations) Answer each of these unrelated questions.
(a) On January 1, 2003, Rather Corporation sold a building that cost $250,000 and that had accumulated depreciation of $100,000 on the date of sale. Rather received as consideration a $275,000 noninterest-bearing note due on January 1, 2006. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2003, was 9%. At what amount should the gain from the sale of the building be reported?
(b) On January 1, 2003, Rather Corporation purchased 200 of the $1,000 face value, 9%, 10-year bonds of Walters Inc. The bonds mature on January 1, 2013, and pay interest annually beginning January 1, 2004. Rather Corporation purchased the bonds to yield 11%. How much did Rather pay for the bonds?
(c) Rather Corporation bought a new machine and agreed to pay for it in equal annual installments of $4,000 at the end of each of the next 10 years. Assuming that a prevailing interest rate of 8% applies to this contract, how much should Rather record as the cost of the machine?
(d) Rather Corporation purchased a special tractor on December 31, 2003. The purchase agreement stipulated that Rather should pay $20,000 at the time of purchase and $5,000 at the end of each of the next 8 years. The tractor should be recorded on December 31, 2003, at what amount, assuming an appropriate interest rate of 12%?
(e) Rather Corporation wants to withdraw $100,000 (including principal) from an investment fund at the end of each year for 9 years. What should be the required initial investment at the beginning of the first year if the fund earns 11%?
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