Class Notes on Capital Investments and TVM-2 - The...

The University of Texas at Austin
McCombs School of Business
ACC 310F: Foundations of Accounting (ACC 310F)
Class Notes on Capital Investments and Time Value of Money
Chapter 15
Overview
Someday you may decide to buy a house. If so, it's a commitment that should be considered
carefully because if you have to borrow money to purchase the house, typical loans have terms
in the decades. In this section, you'll learn how companies evaluate the implication of similar
long-term time decisions.
Demonstration Problem #1
If you borrowed $800 at an annual rate of interest of 10% how much would you owe in two
years assuming you made no payments on the loan until then?
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Demonstration Problem #2
Your lemonade company is considering investing in the High Output Automatic Ice Maker; the
machine costs $2,600 and you’ve estimated that it will increase net cash flows by $700 per year
for 4 years at which time it will be worthless.
What is the cash payback period for the investment?
Using an interest rate of 8% what is the net present value of the investment?