{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Acc201 Chapter 10 important information part 4

# Acc201 Chapter 10 important information part 4 - The...

This preview shows page 1. Sign up to view the full content.

The present value of an annuity is the value now of a series of equal amounts to be received (or paid out) for some specified number of periods in the future. Example: What is the present value of receiving \$1,000 each year for three years at an interest of 10%, compounded annually? The present value is \$2,486.90. Using the present value of an annuity table, we find the factor for 10% and 3 periods, which is 2.4869. We then multiply this factor times the annuity payments of \$1,000 to arrive at a present value of \$2,486.90. So, if we invest \$2,486.90 today at 10% for 3 years, we can receive payments of \$1,000 each of the next 3 years. Part I On January 1, 2006, Starbucks bought some new delivery trucks. The company signed a note agreeing to pay \$200,000 on December 31, 2007. The market interest rate for this note is 12%. What is the present value of this note? Part II Using the present value of a single amount table, we find the factor for 12% and 2 periods, which is .7972. We then multiply this factor times the future value of \$200,000 to arrive at a present value of \$159,440.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Ask a homework question - tutors are online