ACCT 301 Chapter Notes - Chapter 6: Cash Flow

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magentaporpoise298

15 Nov 2016

School

Old Dominion University

Department

Accounting

Course

ACCT 301

Professor

Jong Park

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Document Summary

Lo6 1: explain the difference between simple and compound interest. A dollar today is worth more than a dollar to be received in the future. The difference between the present value of cash flows and their future value represents the time value of money. Interest is the rent paid for the use of money over time. Lo6 2: compute the future value of a single amount. The future value of a single amount is the amount of money that a dollar will grow to at some point in the future. It is computed by multiplying the single amount by (1 + i)n, where i is the interest rate and n the number of compounding periods. The future value of table allows for the calculation of future value for any single amount by providing the factors for various combinations of i and n. Lo6 3: compute the present value of a single amount.

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.

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

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

ACCT 301 Chapter Notes - Chapter 6: Cash Flow

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