ACCT 1A Lecture Notes - Lecture 20: Savings Account, Debenture, Mortgage Note

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magentamuskrat366

9 Aug 2020

School

Irvine Valley College

Department

Accounting

Course

ACCT 1A

Professor

urell

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Document Summary

The concept of present value (pv) is based on the time value of money it provides a foundation for measuring and reporting long-term notes and bonds. Present value: is the current cash equivalent of an amount to be received in the future, or a future amount discounted for compound interest. Money received today is worth more than money to be received one year from today, because it can be used to earn interest. The value of money changes over time because money can earn interest. The opposite situation occurs when you know the dollar amount of a cash flow that occurs today and need to determine its value at some point in the future these are called future value problems. Future value is the sum to which an amount will increase as a result of. Present and future value problems may involve two types of cash flow: a single compound interest payment or an annuity (series of cash payments).

Related Questions

Time Value of Money: Basics
Using Table 12A.1 and Table 12A.2 of this chapter, determine the answers to each of the following independent situations. (Round answers to the nearest whole number.)

(a) The future value in three years of $1,000 deposited today in a savings account with interest compounded annually at 8 percent.

(b) The present value of $5,000 to be received in five years, discounted at 10 percent.

(d) An initial investment of $14,904 is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is 12 percent.

(e) A proposed investment will provide cash flows of $50,000, $10,000, and $7,000 at the end of Years 1, 2, and 3, respectively. Using a discount rate of 20 percent, determine the present value of these cash flows.

(f) Find the present value of an investment that will pay $7,000 at the end of Years 10, 11, and 12. Use a discount rate of 12 percent.

azuresnail171

1 Accounting

The following are 10 technical accounting terms.

Net present value Capital budgeting Incremental analysis Discount rate Payback period Present value Sunk cost Salvage value Return on average investment Capital budget audit Each of the following statements may (or may not) describe one of these technical terms.

For each statement, indicate the accounting term described, or answer âNoneâ if the statement does not correctly describe any of the terms.

a the examination of difference among revenue, costs, and cash flows under alternative courses of actions

b a cost incurred in the past that cannot be changed as a result of future actions

c the process of planning and evaluating proposals for investments in plan assets

d the average annual net income from an investment expresses as a percentage of the average amount invested

e the length of time necessary to recover the entire cost of an investment from resulting annual net cash flows

f the present value of investment's expected future cash flows

g the amount of the money today that is considered equivalent to the cash flows expected to take place in the future

h the required rate of return used by an investor to discount future cash flows to their present value

i often an investment's final cash flows to be considered in discounted cash flow analysis

scarletworm172

Let's dive a little deeper into the meaning of these models.According to the NPV method, a dollar that is received immediatelyis preferable to a dollar received at some future date. The methoddiscounts the cash flow based on the time value of money concept.You calculate the present value of expected net cash flows of aninvestment discounted at the cost of capital and subtract theinitial cash outlay of the project. If the NPV is positive, theproject is acceptable, and if the NPV is negative, the projectshould be rejected. When the projects are mutually exclusive theproject with the highest NPV should be accepted. In whatcircumstances would NPV be the best approach to use? Can youprovide the same analysis for a different method?

brownbear692

ACCT 1A Lecture Notes - Lecture 20: Savings Account, Debenture, Mortgage Note

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