Exam 13: Time Value of Money

The value that an amount today will grow to in the future is referred to as the:

Dobson Contractors is considering buying equipment at a cost of $75,000.The equipment is expected to generate cash flows of $15,000 per year for eight years and can be sold at the end of eight years for $5,000.The discount rate is 12%.Assume the equipment would be paid for on the first day of year one,but that all other cash flows occur at the end of the year.Ignore income tax considerations.Determine if Dobson should purchase the machine.

Miller borrows $300,000 to be paid off in three years.The loan payments are semiannual with the first payment due in six months,and interest is at 6%.What is the amount of each payment?

What is the relationship between the present value of a single amount and the present value of an annuity?

DON Corp.is contemplating the purchase of a machine that will produce net after-tax cash savings of $20,000 per year for 5 years.At the end of five years,the machine can be sold to realize after-tax cash flows of $5,000.Assuming a 12% discount rate,calculate the total present value of the cash savings.

If you had an investment opportunity that promises to pay you $20,000 in three years and you could earn a 10% annual return investing your money elsewhere,what is the most you should be willing to invest today in this opportunity?

The future value of $1,000 invested today for three years that earns 10% compounded annually is greater than the future value of a $500 annuity with the same interest rate over the same period.

The present value of $1,000 received three years from today with a discount rate of 10% is less than the present value of a $500 annuity with the same discount rate over the same period.

Below are excerpts from interest tables for 8% interest. Column 4 is an interest table for the:

Davenport Inc.offers a new employee a lump-sum signing bonus at the date of employment.Alternatively,the employee can take $30,000 at the date of employment and another $50,000 two years later.Assuming the employee's time value of money is 8% annually,what lump-sum at employment date would make her indifferent between the two options?

Compute the present value of the following single amounts to be received at the end of the specified period at the given interest rate.

Today,Thomas deposited $100,000 in a three-year,12% CD that compounds quarterly.What is the maturity value of the CD?

The value of $1 today is worth more than $1 one year from now.