Appendix B - APPENDIXB TimeValueofMoney BRIEFEXERCISEB1(a Interest=pXiXn I=$5,000X.06X10years I=$3,000 Accumulatedamount=$5,000 $3,000=$8,000(b

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APPENDIX B Time Value of Money SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE B-1 (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 B-2 1. a. b. 6% 5 periods 2.5% 6 periods 2. a. b. 5% 10 periods 2% 12 periods BRIEF EXERCISE B-3 FV = p X FV of 1 factor = $10,000 X 1.62889 = $16,288.90 BRIEF EXERCISE B-4 FV of an annuity of 1 = p X FV of an annuity factor = $80,000 X 12.57789 = $1,006,231.20 Appendix B-1
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BRIEF EXERCISE B-5 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 B-6 FV = p X FV of 1 factor = $20,000 X 1.33823 = $26,764.60 BRIEF EXERCISE B-7 1. 12% 6 10% 15 4% 16 2. 12% 20 10% 5 4% 8 BRIEF EXERCISE B-8 (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 B-2
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(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 B-9 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 B-10 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 B-3
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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.

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Appendix B - APPENDIXB TimeValueofMoney BRIEFEXERCISEB1(a Interest=pXiXn I=$5,000X.06X10years I=$3,000 Accumulatedamount=$5,000 $3,000=$8,000(b

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