Exam 27: Time Value of Money

Bill and Ellen Sweatt plan to invest $2500 a year in an educational IRA for their granddaughter Sloane Martin. They will make these deposits on January 2^nd of each year. Bill and Ellen feel they can safely earn 8%. How much will be in this account on December 31 of the 18^th year?

Dexter Company is considering purchasing equipment. The equipment will produce the following cash flows: Year 1 \ 120,000 Year 2 \ 200,000 Dexter requires a minimum rate of return of 10%. What is the maximum price Dexter should pay for this equipment?

In present value calculations the process of determining the present value is called

Wingate Company borrowed $90000 on January 2 2017. This amount plus accrued interest of 6% compounded annually will be repaid at the end of 3 years. What amount will Wingate repay at the end of the third year?

Lamb Company deposited $15000 annually for 6 years in an account paying 5% interest compounded annually. What is the balance of the account at the end of the 6th year?

Which table has a factor of 1.00000 for 1 period at every interest rate?

CVS leases a building for 20 years. The lease requires 20 annual payments of $10000 each with the first payment due immediately. The interest rate in the lease is 10%. What is the present value of the cost of leasing the building?

The amount you must deposit now in your savings account paying 5% interest in order to accumulate $10000 for your first tuition payment when you start college in 3 years is

The amount you must deposit now in your savings account paying 6% interest in order to accumulate $6000 for a down payment 5 years from now on a new car is

Chang Company earns 12% on an investment that will return $400000 eleven years from now. What is the amount Chang Company should invest now to earn this rate of return?

Flower Company is considering an investment which will return a lump sum of $2500000 six years from now. What amount should Flower Company pay for this investment to earn an 11% return?

Perdue Company has purchased equipment that requires annual payments of $30000 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the equipment?

If Kelly Cranford invests $11970 now she will receive $40000 at the end of 14 years. What annual rate of return will Kelly earn on her investment?

Bill Cigarettes acquired a bad habit of smoking in high school. Bill spends approximately $70 a month or $840 a year on cigarettes. He is not concerned with health issues but he is keenly aware of financial issues. Show Bill how much he would have at retirement in 20 years if he invested $840 a year at 8% instead of smoking.

Which of the following accounting problems does not involve a present value calculation?

Payments or receipts of equal dollar amounts are referred to as __________________.

Many companies calculate the future value of the cash flows involved in an investment in evaluating long-term capital investments.

A higher discount rate produces a higher present value.

Lucky Lou has just won the lottery and will receive an annual payment of $100000 every year for the next 20 years. If the annual interest rate is 8% what is the present value of the winnings?

The _____________________ of an annuity is the sum of all the payments plus the accumulated compound interest on them.