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APPENDIX B
Time Value of Money
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE B1
(a)
Interest = p X i X n
I = $5,000 X .06 X 10 years
I = $3,000
Accumulated amount = $5,000 + $3,000 = $8,000
(b)
Future value factor for 10 periods at 6% is 1.79085 (from Table 1)
Accumulated amount = $5,000 X 1.79085 = $8,954.25
BRIEF EXERCISE B2
1.
a.
b.
6%
5 periods
2.5%
6 periods
2.
a.
b.
5%
10 periods
2%
12 periods
BRIEF EXERCISE B3
FV = p X FV of 1 factor
= $10,000 X 1.62889
= $16,288.90
BRIEF EXERCISE B4
FV of an annuity of 1 = p X FV of an annuity factor
= $80,000 X 12.57789
= $1,006,231.20
Appendix B1
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View Full Document BRIEF EXERCISE B5
FV = p X FV of 1 factor + (p X FV of an annuity factor)
= $5,000 X 2.85434 + ($1,000 X 30.90565)
= $14,271.70 + $30,905.65
= $45,177.35
BRIEF EXERCISE B6
FV = p X FV of 1 factor
= $20,000 X 1.33823
= $26,764.60
BRIEF EXERCISE B7
1.
12%
6
10%
15
4%
16
2.
12%
20
10%
5
4%
8
BRIEF EXERCISE B8
(a)
i = 8%
=
0
1
2
3
4
5
6
7
8
1
3
5
7
Discount rate from Table 3 is .54027 (8 periods at 8%). Present value of
$10,000 to be received in 8 years discounted at 8% is therefore $5,402.70
($10,000 X .54027).
Appendix B2
(b)
i = 9%
$10,000
$10,000
$10,000
?
$10,000 $10,000
$10,000
$10,000
$10,000
$10,000
=
0
1
2
3
4
5
6
Discount rate from Table 4 is 4.48592 (6 periods at 9%). Present value of 6
payments of $10,000 each discounted at 9% is therefore $44,859.20
($10,000 X 4.48592).
BRIEF EXERCISE B9
i = 15%
?
=
0
1
2
3
4
5
1
3
5
Discount rate from Table 3 is .49718 (5 periods at 15%). Present value of
$500,000 to be received in 5 years discounted at 15% is therefore $248,590
($500,000 X .49718). Smolinski Company should therefore invest $248,590
to have $500,000 in five years.
BRIEF EXERCISE B10
i = 11%
=
0
1
2
3
4
5
6
7
8
1
3
5
7
Discount rate from Table 3 is .43393 (8 periods at 11%). Present value of
$875,000 to be received in 8 years discounted at 11% is therefore $379,688.75
($875,000 X .43393). Pizzeria Company should invest $379,688.75 to have
$875,000 in eight years.
Appendix B3
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This note was uploaded on 04/04/2009 for the course ACC 321 taught by Professor Ahmedmokhtar during the Spring '09 term at Ain Shams University.
 Spring '09
 AhmedMokhtar
 Financial Accounting

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