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Unformatted text preview: h t t p : / / i c . u c s c . e d u / ~ s h e p U n i v e r s i t y o f C a l i f o r n i a , S a n t a C r u z Chapter 15 LongTerm Liabilities 979 Chapter 15 Appendix The Time Value of Money: Present Value of a Bond and EffectiveInterest Amortization ! Appendix Problems (1525 min.) P 15A1 Present Value of Annuity at 12% for 5 years (Exhibit 15A1) Present value GE: $60,000 × 3.605 = $216,300 Present Value of $1 for 5 periods at 12% (Exhibit 15A2) Present Value Westinghouse: $400,000 × .567 = $226,800 Exxel should buy the equipment from GE because its cost (measured by present value) is lower. h t t p : / / i c . u c s c . e d u / ~ s h e p U n i v e r s i t y o f C a l i f o r n i a , S a n t a C r u z Accounting 7/e Solutions Manual 980 (4050 min.) P 15A2 Req. a Present Value of Bonds PV of principal: $88,000 × PV of $1 at 6% for 20 periods ($88,000 × .312—Exhibit 15A1) $27,456 PV of interest: ($88,000 × .12 × 6/12) × PV of annuity at 6% for 20 periods ($5,280 × 11.470—Exhibit 15A2) 60,562 PV (market price) of bonds $88,018 This present value should be $88,000. The difference of $18 is due to rounding to three decimal places in the presentvalue tables. h t t p : / / i c . u c s c . e d u / ~ s h e p U n i v e r s i t y o f C a l i f o r n i a , S a n t a C r u z Chapter 15 LongTerm Liabilities 981 (continued) P 15A2 Req. b Present Value of Bonds PV of principal: $88,000 × PV of $1 at 7% for 20 periods ($88,000 × .258—Exhibit 15A1) $22,704 PV of interest: ($88,000 × .12 × 6/12) × PV of annuity at 7% for 20 periods ($5,280 × 10.594—Exhibit 15A2) 55,936 PV (market price) of bonds $78,640 Req. c Present Value of Bonds PV of principal: $88,000 × PV of $1 at 5% for 20 periods...
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This note was uploaded on 10/26/2009 for the course ECON 10A taught by Professor Gusarson during the Fall '07 term at UCSC.
 Fall '07
 Gusarson

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