ACCT 3001 Chapter : Chapter 6 Summary By Objective

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azuremammoth471

15 Mar 2019

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Chapter 6: accounting and time value of money. Objective 1:identify accounting topics where time value of money is relevant. List some of the accounting applications that use present value measurements. Objective 2: distinguish between simple and compound interest. Explain the difference between simple and compound interest calculations. Objective 4: identify variables fundamental to solving interest problems. State the 4 variables that are fundamental to all compound interest problems. Bruegger co. wants to determine the future value of ,000 invested for 5 years compounded annually at an interest rate of 11%. What is the present value of ,253 to be received or paid in 5 years discounted at. Objective 5: solve future and present value of 1 problems. For the following two examples, draw the time diagram for the example and solve using the appropriate table. Explain how to compute an unknown factor (a number of periods or interest rate). Objective 6: solve future value of ordinary and annuity due problems.

Related Questions

If a single future amount of $800 is to be received in 3 yearsand discounted at 6%, its present value is

$754.72.

$693.36.

$752.00.

$671.70.

A $50,000, 5-year note payable that pays 8% interest quarterlywould be discounted back to its present value by using tables thatwould indicate which one of the following period and interestcombinations?

5 interest periods and 8% interest.

20 interest periods and 8% interest.

20 interest periods and 2% interest.

5 interest periods and 2% interest

The amount of interest involved in any financing transaction isbased on each of the following except the

interest rate.

time.

principal.

present value of 1 factor.

The following situations should be considered independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. John Jamison wants to accumulate $68,205 for a down payment on a small business. He will invest $35,000 today in a bank account paying 10% interest compounded annually. Approximately how long will it take John to reach his goal?
2. The Jasmine Tea Company purchased merchandise from a supplier for $37,698. Payment was a noninterest-bearing note requiring Jasmine to make seven annual payments of $8,000 beginning one year from the date of purchase. What is the interest rate implicit in this agreement?
3. Sam Robinson borrowed $19,000 from a friend and promised to pay the loan in 10 equal annual installments beginning one year from the date of the loan. Samâs friend would like to be reimbursed for the time value of money at an 11% annual rate. What is the annual payment Sam must make to pay back his friend?

Required 1

Present Value:

Future Value

Required 2

Present Value:

Future Value

Required 3

table or calculator function

Present Value:

Annual Installment

skyalpaca142

Net Present ValueâUnequal Lives

Project 1 requires an original investment of $55,300. The project will yield cash flows of $12,000 per year for eight years. Project 2 has a calculated net present value of $12,400 over a six-year life. Project 1 could be sold at the end of six years for a price of $53,000.

Use the Present Value of $1 at Compound Interest and the Present Value of an Annuity of $1 at Compound Interest tables shown below.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.352	2.991
6	4.917	4.355	4.111	3.784	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

a. Determine the net present value of Project 1 over a six-year life with residual value, assuming a minimum rate of return of 15%. If required, round to the nearest dollar.
$

b. Which project provides the greatest net present value?
SelectProject 1Project 2

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ACCT 3001 Chapter : Chapter 6 Summary By Objective

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