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Shifty Shingles purchased new roofing equipment that requires annual payments of $1,000 be made at the end of each of the next 3 years. In addition, at the end of the 3rd year there is an additional payment of $10,000 (i.e., the last of the 3 payments will be the last $1,000 payment plus the $10,000 additional payment). The appropriate discount rate is 7% compounded annually. What amount will be used to record the cost of the equipment at the time of purchase? Remember to round to the nearest dollar. Table Factors for 7% and 3 periods Future value of $1 1.22504 Present value of $1 0.81630 Future value of an annuity of $1 3.214901 Present value of an annuity of $1 2.62432 $10,787 $15,439 $13,000 $8,163 $11,163 You won a lottery which offers you some money in either of two options. Assuming an annual interest rate of 5.0%, how would you decide which option you should choose? i. Receive $41,000 one year from now. ii. Receive $4,000 at the end of every year for ten years. The first payment would be one year from now. I would compare the PV of $40,000 (or $4,000 x 10) at an interest rate of 5% for 10 periods with the PV of a lump sum of $41,000 one year from now with an interest rate of 5%. I would compare $40,000 ($4,000 10) with $41,000. I would compare the FV of a $4,000 annuity, with an interest rate of 5% for 10 periods with the PV of a lump sum of $41,000 one year from now with an interest rate of 5%. I would compare the PV of a $4,000 annuity, with an interest rate of 5% for 10 periods with the PV of a lump sum of $41,000 one year from now with an interest rate of 5%

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