1) James and Jane Erickson were very happily married for 35 years, until James had a massive heart attack on September 15, 2018 and died at the age of 60. Jane is also 60 years old. Fortunately, James had a $1 million life insurance policy that had several options. Jane has consulted you about which option would be most beneficial to her. A discount rate of 7% is appropriate. Her options are as follows: a) Receive a lump sum of $1,000,000 immediately.
b) Receive an annuity of $7,000/month for 30 years, with the first payment occurring on the first of each month.
c) Receive an annuity of $7,000/month for 30 years, with the first payment occurring on the end of each month.
d) Receive a lump sum of $500,000 immediately and an annuity of $3,500/month for 30 years, with the first payment occurring on the end of each month.
e) Wait 5 years and then receive an annual annuity of $130,000/year at the beginning of each year for 20 years.

Use Excel for all your computations and presentation of your results and recommendations.

2) Essex Corporation has been growing for the past several years and needs to raise $10,000,000 for a new factory and warehouse to satisfy increased customer demand. They have been working with an investment banker to issue a $10,000,000 bond issue. The investment bank has recommended issuing 8% bonds on January 1, 2019 that have a 20 year maturity date and pays interest each June 30th and December 31st. The current market rate for bonds of similar risk is 7.5%. How much cash will Essex raise from the bond issue? Prepare a full 20 year (40 period) amortization schedule (effective interest method) using Excel. Prepare the journal entries for January 1, 2019, June 30, 2019, and December 31, 2019.

3) O’Brien, Inc. needs a stamping machine for their factory so they can better meet customers’ requirements. After investigating numerous alternatives they have the following alternatives:

a) Purchase Machine A for $120,000.
b) Lease Machine B, a similar machine, for 7 years (8 year EUL) for $20,000 at the beginning of each year. There is no transfer of ownership or bargain purchase option. There is no salvage value at the end of the lease term. O’Brien’s incremental borrowing rate is 9%.

Use Excel to prepare a lease amortization schedule and a depreciation schedule for the term of the lease. Prepare journal entries for the inception of the lease and the first three lease payments and first three depreciation entries. Should O’Brien purchase Machine A or lease Machine B? Why?