ACCT 3001 Chapter : Chapter 6 Class Examples

11 views6 pages

azuremammoth471

15 Mar 2019

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

7,347: your brother buys your used sound system and offers you three different payment plans, now to settle the debt, now and /qtr for the next 10 qtrs, now and in one year. Assume your investment opportunity cost is 8% compounded quarterly. Chapter 6 time value of money: you want to buy a new laptop. The store gives you three different payment options: cash now, /month for 20 months, down and /month for 15 months. The interest rate the store charges is 24% and is compounded monthly. Which alternative will you choose: you win a lottery. You can either receive ,000 now or ,000 a year for 20 years at the beginning of each year starting today. Assume you plan to invest in nice, safe treasury bonds at 5%, compounded annually. You plan to retire at 65 and anticipate living until you are 90.

Related Questions

Part I:
Solve 4 of the following time value of money problems by filling inthe 4 columns to the right of the description.
Be sure to solve 1 problem from each of the following 4 categorieslisted under Problem Types. I have completed the first row as anexample.

Part II:
Discuss how you may use time value of money concepts in yourpersonal life. For example, saving for college tuition orretirement, paying off a car loan or home mortgage. Give specificdetails as to how you would use these formulas for more effectivedecision making. Create 1 description and fill in the table foryour newly created question.

Problem Types:
1 pv = present value of $1
2 fv = future value of $1
3 PVAo = Present Value of an Ordinary Annuity of$1 (payment at end of period)
4 FVAo = Future Value of an Annuity of $1(payment at end of period)

	Description	Type of Problem	Table	Formula	Answer
1	How much money must your rich unclegive you now to finance four years of college, assuming an annualcost of $48,000 and an interest rate of 6% (applied to theprincipal until disbursed)?	Present Value of anordinary Annuity	PVAo	PV = 48,000(3.465)	$166,325.07
2	How much interest would you earn ifyou deposited $300 at 6 percent for 27 months?
3	If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2%, how much will it be worth in fiveyears?
4	How much interest would you pay toborrow $670 for eight months at 12 percent?
5	You wish to borrow $18,000 to buy anew auto-mobile. Rate is 8.6% over five years with monthlypayments. Find the monthly payment.
6	What is the future value of $800 at8 percent after six years?
7	How much would you have in savingsif you kept $200 on deposit for eight years at 8% compoundedsemiannually?
8	You choose to invest $50/month in a401(k) that invests in an international stock mutual fund. Assumingan annual rate of return of 9%, how much will this fund worth ifretiring in forty years?
9	What is the future value of anannual deposit of $230 earning 6 percent for 15years?
10	If you invest $600/Year in a 401(k)that invests in an international stock mutual fund. Assuming anannual rate of return of 9%, how much will this fund worth ifretiring in forty years?
11	What amount would you have in aretirement account if you made annual deposits of $375 for 25 yearsearning 12 percent, compounded annually?
12	What is the present value of $2,200earning 15 percent for eight years?
13	How much money must you set asideat age 20 to accumulate retirement funds of $100,000 at age 65,assuming a rate of interest of 7%?
14	To have $6,000 for a childâseducation in 10 years, what amount should a parent deposit in asavings account that earns 12 percent, compoundedquarterly?
15	If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2% with quarterly compounding, how muchwill it be worth in five years?
16	What is the present value of awithdrawal of $200 at the end of each year for 14 years with aninterest rate of 7 percent?
17	How much would you have to depositnow to be able to withdraw $650 at the end of each year for 20years from an account that earns 11 percent?
18	What would be the annual paymentamount for a $20,000, 10-year loan at 7 percent?

ochremallard624

5. An investment proposal has an outlat of $60.000 today and annual cash inflow of $15,000 from year 1 to year 6. Find its net present value of the required rate of return is 15%. Is the investment viable?

6. A debt of $5,300 due in four years and another $11,500 due in twelve years will be settled by making two equal payment, one at the end of six years and the other at the end of 9 years, Find the total payment assuming that money is worth 8% compounded quarterly. Use the twelve years as a focal date.

7. On 5 februrary 2012, Anna borrows $80,000 and agree to repay the loan in 110 days at 9% per annum simple interest, Find the simple amount of the loan and the settlement date of the loan, Using the bankers rule

8. The net price of an item listed for $1,500 after deducting trade discount of 20%, 15% and x% is $969. FInd X

9. AAA and BBB need an additional $6565 for a down payment on a home they hope to buy in 2 years, They invest $808 at the end of each quarter in an account earning6% compounded quarterly. Find the amount of the annuity and the interest earned.

10. Find the value in 2 years time of $4,444 invested at 5% compounded annually. In the following 2 years, the interest rate is expected to rise to 8%. Find the value of the investment at the end of the 4 years period, and find the overall percentage increase.

11. A debt of $5,555 due 5 month ago and another $8,888 due in 12 month are to be settled by making three equal payment. One at the end of the two months, One at the end of six months and the other at the end of ten months. Find the size of payment using. the seconf month as the focal date. Assuming money is worth 9% per annum simple interest.

12. Four years ago John borrowed $3000 from Arlette. The principal with interest at 10% compounded semi-annually is to be repaid six years from the date of the loan. Fifteen month ago, John borrowed another $1500 for 3 and haly year at 9% compounded quarterly. John is now proposing to settle both debts with two equal payment to be made 2 and 3 and half years from now. what should the payment be if money now earns 8% compounded quarterly.

13. Mathew buys a house for $250,000, He makes a 10% down payment and finances the balance through a bank for 25 years. A. if the interest rate is 7% compounded monthly, find the monthly payment that Mathew has to make to settle the loan. How much is the total interest charged? B. Suppose Mathew misses the first four payments. How much should he pay on the fifth month if he wants to settle the outstanding arrears? C. Immediately after paying for 15 years, Mathwe wants to settle the loan in full, How much is the amount he needs to pay?

14. Nania bough a piece of land for $150,000, She made an initial down payment of $40,000 and the balanced is financed through a bank. For the repayment of the bank loan, She has to pay $1975.50 a month. A) If the bank rate is 12% compounded monthly, Find the number of monthly payment that will settle the loan. B) If Nania intends to settle the loan by making a final payment immediately after paying the first 40 monthly payment, Find the value of this payment. What is the total interest payment she has to pay? C) If Nania intends to settle the loan by making a final payment on the 41st payment immediately after paying the first 40 monthly payments, Find the value of this payment.

15a. What is an annuity?

b. Fatimah purchased a house costing $450,000. She made a down payment of 10%, The balance was borrowed from Capital one bank which charges 9% compounded monthly. to setle the loan, Fatimah had to make equal monthly payment for 15 years.

i) How much is the down payment ii) Find Fatimah's Monthly payment iii) Find the total interst that she has to pay.

ultramarineyellowjacket887

1. RaoConstruction recently reported $20.50 million of sales, $13 millionof operating costs other than depreciation, and $3 million ofdepreciation. It had $8.35 million of bonds outstanding that carrya 8.0% interest rate, and its federal-plus-state income tax ratewas 35%. What was Rao's operating income, or EBIT, inmillions?
Vasudevan Inc. recently reported operatingincome of $2.9 million, depreciation of $1.10 million, and had atax rate of 40%.The firm's expenditures on fixed assets and networking capital totaled $0.6 million.How much was its free cashflow, in millions?2.
3. On 12/31/08, Hite Industriesreported retained earnings of $525,000 on its balance sheet, and itreported that it had $150,000 of net incomeduring the year. On its previous balance sheet, at 12/31/07, thecompany had reported $450,000 of retained earnings. No shares wererepurchased during 2008. How much in dividends did the firm payduring 2008?
4. 26 points. Baker &Co. has applied for a loan from the Trust Us Bank in order toinvest in several potential opportunities. The following are thefinancial statements given to Trust Us Bank:
BalanceSheet 12/31/08 12/31/09
Cash $305 270
Accountsreceivable 275 290
Inventory 600 580
Currentassets 1,180 1,140
Plantandequipment 1,700 1,940
Less:accdepr (500) (600)
Netplant andequipment 1,200 1,340
Totalassets $2,380 $2,480
Liabilities and Owners%u2019 Equity
Accountspayable $150 $200
Notespayable 125 0
Currentliabilities 275 200
Bonds 500 500
Owners%u2019 equity
Commonstock 165 305
Paid-in-capital 775 775
Retainedearnings 665 700
Totalowners%u2019equity 1,605 1,780
Totalliabilities and owners%u2019 equity $2,380 $2,480
Income Statement
Sales(100%credit) $1,100 $1,330
Cost ofgoodssold 600 760
Grossprofit 500 570
Operatingexpenses 20 30
Depreciation 160 200
Netoperatingincome 320 340
Interestexpense 64 57
Netincome beforetaxes 256 283
Taxes 87 96
Netincome 169 187
Compute the following ratios for2009:
2009
Currentratio
Acid testratio
Inventory turnover
Times Interest Earned
Fixed AssetTurnover
DSO
Debtratio
Total assetturnover
ROA
Operating profitmargin
Profitmargin
Return on equity
Basic Earning Power
5. Inorder to send your oldest child to law school when the time comes,you want to accumulate $80,000 at the end of 18 years. Assumingthat your savings account will pay 5% compounded monthly, how muchwould you have to deposit if:
a. you want to deposit an amount annually atthe end of each month?
b. you want to deposit one large lump sumtoday?
6. What is the present value of the followingperpetuities?
a. $800 discounted at 7%
b. $450 discounted at 11%
c. $1,100 discounted at 6%
d. $790 discounted at 9.5%
7.
a.) If Sparco, Inc. deposits $180 at the endof each year for the next eight years in an account that pays 6%interest, how much money will Sparco have at the end of eightyears?
b.) Suppose Sparco decides that they need tohave $8000 at the end of the eight years. How much will they haveto deposit at the end of each year?
8. You have a credit card with a balance of $20,000. The annualinterest rate on the card is 18% compounded monthly, and theminimum payment is $250 per month. If you pay only the minimumpayment each month and do not make any new charges on the card, howmany years will it take for you to pay off the $20,000balance?
9. Torepay a $2000 loan from your bank, you promise to make equalpayments every six months for the next five years totaling $3500.What annual rate of interest will you be paying?

rosecockroach901

ACCT 3001 Chapter : Chapter 6 Class Examples

Document Summary

Get access

Related Documents

ACCT 3001 Chapter : Chapter 6 Class Examples

ACCT 3001 Chapter : Chapter 6 Class Examples With Solutions

MT 1123 Study Guide - Final Guide: Compound Interest, Money Market Account

Related Questions