Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 40

Cash Receipts Frequency and Present-Value Consequences Assume that you are about to sell property (a vacant parcel of real estate) you own but otherwise have no use for. The net-of-sales- commission selling price for the property is $500,000. You are willing to finance this transaction over a 20-year period and have told the buyer that you expect a 12 percent pretax return on the transaction. The buyer has asked you for a payment schedule under several alternatives.

Required

1. What will be your periodic cash receipt, to earn a 12 percent return, if payments are received from the purchaser:

?a. at the end of each week.

?b. at the end of each month.

?c. at the end of each quarter.

?d. at the end of each year.

---

2. What general conclusion can you draw based on the calculations above in (1)?

Step 1 of 5

(1)

Rate is represents the interest rate for loan, nper is represents the no. of payment, PV is represents the present value (for example- the total amount of future payment known as principal), Fv value represents the future value (at the time calculating the cash balance, fv supposed to be 0, if fv is excluded), typing the 1 and 0 shows that payment are due or omitted (1 is shows that the payment is happen at the each duration’s end).

Before proceeding for the periodic cash receipt, first, have to calculate the nper and rate for each type of payment: