ACCT 2101 Chapter 12: 12_Time Value of Money

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beigewildebeest137

16 Apr 2018

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In order to move forward to module 13 (chapter 12 planning for capital investments), it is important for you to have a basic understanding of the time value of money principles. Therefore, we have included appendix a which discusses this topic as module 12. This module includes a discussion of interest and the difference between simple and compound interest. It also includes an explanation of present value and future value and calculating each as a single amount or annuity. Tables are provided in the appendix which will allow you to calculate these amounts without long manual calculations or the use of a financial calculator. A financial calculator is not required for this course. Interest is payment for the use of another person"s money. It is the difference between the amount borrowed or invested (called the principal) and the amount repaid or collected.

Related Questions

discussion post:

Chapter 13

This module extends our conversation to the corporate form oforganization. We describe the accounting and reporting for stockissuances, dividends and other equity transactions.

What is a corporation? Identify the key advantages anddisadvantages of corporations.

Explain how to calculate the price-earnings ratio and describehow it is used in analysis of a company's financial condition andperformance.

What is a stock split? How is a stock split different from astock dividend?

Chapter 14

This module focuses on long-term liabiities. We explain how tovalue, record, amortize, and report these liabilities in financialstatements.

What is a bond? Identify and discuss the differentcharacteristics and features bonds may possess.

How are bond issue prices determined?

On January 1, a company borrowed $70,000 cash by signing a 9%installment note that is to be repaid with 4 equal year-endpayments of $21,607. The amount borrowed is $70,000 and 4 years ofinterest at 9% equals $25,200, for a total of $95,200, yet thetotal payments on the note amount to only $86,428. Explain.

The Landers Corporation needs to raise $1.60 million of debt ona 20-year issue. If it places the bonds privately, the interestrate will be 10 percent. Twenty thousand dollars in out-of-pocketcosts will be incurred. For a public issue, the interest rate willbe 9 percent, and the underwriting spread will be 2 percent. Therewill be $120,000 in out-of-pocket costs. Assume interest on thedebt is paid semiannually, and the debt will be outstanding for thefull 20-year period, at which time it will be repaid. Use AppendixB and Appendix D for an approximate answer but calculate your finalanswer using the formula and financial calculator methods.

For each plan, compare the netamount of funds initially available