Part 1—Dr. John Whitten is still figuring on his equipment fund. According to his calculations he needs $250,000 to be accumulated six years from now. John is now trying to find the present value of the $250,000. He continues to assume an interest rate of 5 percent.

Required

Compute the present value of $250,000 accumulated fifteen years from now. Assume an interest rate of 5 percent. (Use the Present Value Table.)

Part 2—John doesn’t like the answer he gets. What, he thinks, if he can raise the interest rate to 7 percent? How much difference would that make?

Required

Compute the present value of $250,000 accumulated fifteen years from now assuming an interest rate of 7 percent. Compare the difference between this amount and the present value at 5 percent.