Exam 23: Understanding Time Value of Money Formulas and Concepts

On January 31, 2016, Manning Company acquired a new machine by paying $40,000 cash and agreeing to pay $20,000 annually for four years, beginning on January 31, 2017. Assuming an interest rate of 10%, Manning should record the acquisition cost of the machine on January 31, 2016, at

Using the compound interest tables, answer each of the following questions. Required: a. Future value of an annuity due when the periodic amount is known, table a. Pedro has decided he can save $5,000 a year for the next seven years, starting today. What amount will be available seven years from today if the investment account earns 12% compounded annually? b. Anaposa needs $30,000 ten years from today. She has found an investment account that earns 9% compounded annually. How much must she deposit into that account each year for the next ten years, starting today to achieve her investment goal?

What is the formula for the present value of a single sum at compound interest?

Margaret will receive an insurance settlement of $3,000,000 in five years. Randall is willing to give her a lump sum today in return for the payment in five years. If current interest rates are 12% per year, how much will Margaret receive today?

On June 1,2016, Molser Company acquired a new machine by agreeing to pay five equal annual payments of $20,000, with the first payment due that day. Assuming an interest rate of 14% compounded annually, Molser should record the acquisition cost of the machine as

At the beginning of 2017, Laura Company issued 10-year bonds with a face value of $4,000,000 due on December 31, 2022. The company will accumulate a fund to retire these bonds at maturity. It will make ten annual deposits to the fund beginning on December 31, 2017. How much must the company deposit each year, assuming that it will earn 12% interest compounded annually?

An annuity is a series of

Parker Posie wants to determine how much she must deposit today at 14% interest to provide four withdrawals of $26,000 at the end of each year, beginning five years from now. This is an example of the present value of

The present values of ordinary annuities, annuities due, and deferred annuities were discussed in the textbook. Discuss the ways these three annuities are similar and dissimilar.

An accounting student has just been introduced to present value analysis and comes to you with the following question, "How is present value used in the financial statements?" Required: Give the student examples of financial statement accounts that are stated at present value and explain the advantages of using present value for certain financial statement items.

Each of the following compound interest factors has the same number of periods n) at the same interest rate i). Which one is the table factor for the present value of a single sum?

Complete the following equation: Time Value of Money = ______1)_________+_____2)________+_______3)_______

The future value of $7,000 deposited today and compounded semiannually at an 9% annual interest rate for four years is

Beginning December 31, 2021, eight equal annual withdrawals will be made. Required: Using the appropriate tables, determine the equal annual withdrawals if $30,000 is invested at an interest rate of 14% compounded annually on: 1) January 1, 2021 2) December 31, 2021 3) January 1, 2016

Mathias Company estimated that it has a 20% probability of receiving $240,000 one year from now, a 30% probability of receiving $240,000 two years from now, and a 50% probability of receiving $240,000 three years from now. Required: Using the FASB's concept of "expected cash flows," calculate the present value of the expected cash flows assuming a 10% interest rate compounded annually.

Interest calculated on the original principal regardless of the number of time periods that have passed or the amount of interest that has been paid or accrued in the past is

On August 1, 2016, Jason purchased machinery from Morgan for expanding its production operation. Morgan has given Jason three options for payment: a. $300,000 in cash now b. $150,000 down payment now and $50,000 per year for the next ten years beginning August 1, 2017 c. $100,000 now and $100,000 per year for five years beginning August 1, 2017 Required: Determine which of the above payment plans has the lowest present value. Clearly label all of your work. The effective annual interest rate is expected to be 12% during this period.

All of the following are conditions for an ordinary annuity due except

The amount of future cash flows is an accounting measurement that is considered relevant for decisions made by financial statement users.

Using the compound interest tables, answer each of the following questions. Required: a. Jane has a $35,000 bank loan that she wishes to pay off in five equal annual payments with 12% interest. If the first payment is due one year from today, what will be the amount of the annual payment necessary? b. Joan wants to borrow some money from the bank to start a small business. Joan can afford to pay off the loan in 15 annual installments of $9,500. The bank charges an annual interest rate of 12%. If Joan makes the first payment one year from the date of the loan, how much can Joan borrow?