# appa - APPENDIX A Time Value of Money SOLUTIONS TO BRIEF...

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Appendix A-1 APPENDIX A Time Value of Money SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE A-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 A-2 1. (a) 6% 5 periods 2. (a) 5% 10 periods (b) 4% 8 periods (b) 2% 12 periods BRIEF EXERCISE A-3 FV = p X FV of 1 factor = \$10,000 X 1.48024 = \$14,802.40 BRIEF EXERCISE A-4 FV of an annuity of 1 = p X FV of an annuity factor = \$75,000 X 13.18079 = \$988,559.25

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Appendix A-2 BRIEF EXERCISE A-5 FV = p X of FV 1 factor + (p X FV of an annuity factor) = \$5,000 X 2.85434 + (\$500 X 30.90565) = \$14,271.70 + \$15,452.83 = \$29,724.53 BRIEF EXERCISE A-6 FV = p X FV of 1 factor = \$20,000 X 1.85093 = \$37,018.60 BRIEF EXERCISE A-7 1. (a) 6% 10 (b) 10% 15 (c) 4% 16 2. (a) 12% 20 (b) 10% 5 (c) 4% 8 BRIEF EXERCISE A-8 (a) i = 8% ? \$10,000 0 1 2 3 4 Discount rate from Table 3 is .73503 (4 periods at 8%). Present value of \$10,000 to be received in 4 years discounted at 8% is therefore \$7,350.30 (\$10,000 X .73503).
Appendix A-3 BRIEF EXERCISE A-8 (Continued) (b) i = 9% ? \$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 A-9 i = 12% ? \$500,000 0 1 2 3 4 5 Discount rate from Table 3 is .56743 (5 periods at 12%). Present value of \$500,000 to be received in 5 years discounted at 12% is therefore \$283,715 (\$500,000 X .56743). Smolinski Company should therefore invest \$283,715 to have \$500,000 in five years. BRIEF EXERCISE A-10 i = 9% ? \$600,000 0 1 2 3 4 5 6 7 8 Discount rate from Table 3 is .50187 (8 periods at 9%). Present value of \$600,000 to be received in 8 years discounted at 9% is therefore \$301,122 (\$600,000 X .50187). Pizzeria Company should invest \$301,122 to have \$600,000 in eight years.

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