Student Number
8900608
NAME __________________________________________________________________________________________
ASSIGNMENT NUMBER FOUR
Instructions
Your assignment is due at the beginning of class on August 8th
Assignments that are up to 24 hours late will lose 10%
Assignments that are 24 to 48 hours late will lose 25%
Assignments that are more than 48 hours late will get a mark of 0
Ensure that this cover page is attached to the front page of your assignment
when you hand it in.
Question Possible
Number Marks
1
2
3
4
5
6
7
8
9
10
5
5
5
5
5
5
5
5
5
5
Score
total marks
grade
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question Number 1
a)
A cup of coffee at Tim Hortons today costs $2.00 . Inflation on coffee is expected to be
1.850% per year for the next 4 years. What will be the expected price of a cup of coffee
in 4 years?
b) You will receive $3,500 in 5 years. Inflation is expted to be
What will be the purchasing power of the money you receive in
compared to today's dollars?
c) A cup of coffee costs $2.25 today. If inflation is
of a cup of coffee in 7 years?
2.450% per year.
5 years from now
2.750% per year, what will be the price
d) Inflation was 3.25% for the last 11 years. A cup of coffee costs
the price of a cup of coffee 11 years ago?
$1.35 today. What was
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question Number 2
You want to plan your retirement and have decided you want the equivalent purchasing
power of $2,650,000 today when you retire. You expect to earn 3.000% per year (market rate)
on your investments between now and the time that you retire. Your currently have
$1,015,000 in the bank. How much money per year should you deposit in the bank if
you want to retire in 18 years? Inflation rates are expected to average 1.600% per year
for the next 18 years.
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question Number 3
You are considering purchasing manufacturing equipment at a cost of $575,000
. The
equipment is expected to be used for 17 years at which point the salvage value will be
5.90% of the original equipment cost. The annual inflation rate for the next 17 years is expected
to be 2.10% . The real MARR that you want to achieve is11.70% . The annual operating
costs of the equipment is estimated to be $28,500 /year. Based on this information,
what is the Present Worth of the owning and operating the manufacturing equipment
after accounting for inflation?
Student Number: 8900608
Make sure the number above is your student number or you will get a grade of zero.
Question Number 4
You have been promised to receive $34,200 today and an additional
$23,000 in 1 years.
The money will be deposited into a trust account and you will not be able to access the funds
until 12 years from today. Inflation rates for the next
12 years are expected to be
1.500% per year.
The trust account has a market interest rate of 4.200% per year.
a) How much money will be in the trust account in
12 years?
b) What will be the purchasing power of the money in the account after
12 years, expressed in todays dollars?
c) What is the real rate of return on the money deposited into the trust account?
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question Number 5
You will deposit money into a bank account according to the following schedule:
Today
4 year from today
6 years from today
7 years from today
12 years from today
$188,000
$62,000
$53,000
$88,000
$56,000
After 12 years from today, what will be the purchasing power of the money in
your bank account, expressed in today's dollars?. Your bank pays interest at 5.000%
per year, compounded annually. Inflation is expected to be 2.610% per year.
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question 6
A manufacturing company has purchased equipment to be used in the manufacture
of car parts.
The purchase cost of the equipment was $61,250
Installation costs for the new equipment was $4,441
The equipment is expected to be used for 11 years at which time the salvage value
is expected to be 12.0% of the first cost.
The company uses the Straight Line depreciation method for accounting purposes.
a) What is the annual depreciation rate?
b) What is the annual depreciation?
c) What is the book value after 3 years?
d) What is the book value after 6 years?
e) What is the book value after 11 years?
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question 7
The book value of a machine after 4 years is
$9,800
.
The machine has a 12 year life and a 100% Declining Blance method is used.
What was the original Basis (First Cost) of the machine?
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question #8
A manufacturing company has decided to purchase equipment that has an initial cost of
$252,500 .
The equipment will be used for 8 years, at which point it will have a salvage value of
$35,350 .
The company's accountant has decided to depreciate the equipment using a
125% declining balance
method for determining book value of the equipment.
a)
What is the depreciation charge after the
5
th
year?
b) The accountant changes his mind and has decided to use a straight line depreciation method for determining
book values. With this change made, what is the depreication charge in the
5 th year?
c) What is the book value after the
d) What is the book value after the
5
5
th
th
year when using the 125% declining balance method?
year when using the straight line derpeciation method?
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question #9
A manufacturing company has decided to purchase equipment that has an initial cost of
$543,000
.
For tax puposes, the equipment is depreciated using the Canadian Capital Cost Allowance method at
a rate of 30% .
a) What is the depreication charge at the end of the 5
th
year?
b) What is the Underpeciated Capital Cost after 5 years?
c) How many years will it take for the Undepreciated Capital Cost of the equipment to be
less than 8% of the original purchase price?
Student Number:
8900608
Make sure the number above is your student number or you will get a grade of zero.
Question #10
A company makes the following purchases:
When Purchased
Beginning of year one
Beginning of year two
Beginning of year three
Beginning of year three
a)
b)
c)
d)
e)
Item Purchased
CCA Rate
car
parking lot
furniture
software
30%
8%
20%
100%
Purchase Price
$29,500
$171,500
$1,850
$1,630
What are the total Undepreciated Capital Costs and the total Capital Cost Allowance in year 1?
What are the total Undepreciated Capital Costs and the total Capital Cost Allowance in year 2?
What are the total Undepreciated Capital Costs and the total Capital Cost Allowance in year 3?
What are the total Undepreciated Capital Costs and the total Capital Cost Allowance in year 4?
What are the total Undepreciated Capital Costs and the total Capital Cost Allowance in year 5?