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Unformatted text preview: 61CHAPTER 6 Accounting and the Time Value of Money SOLUTIONS TO EXERCISES EXERCISE 61 (5–10 minutes) (a) (b) Rate of InterestNumber of Periods1. a. 9% 9 b. 3% 20 c. 5% 30 2. a. 9% 25 b. 5% 30 c. 3% 28 EXERCISE 63 (10–15 minutes) (a) $7,000 X 1.46933 = $10,285.31. (b) $7,000 X .43393 = $3,037.51. (c) $7,000 X 31.77248 = $222,407.36. (d) $7,000 X 12.46221 = $87,235.47. 62EXERCISE 66 (15–20 minutes) (a) Future value of $12,000 @ 10% for 10 years ($12,000 X 2.59374) = $31,124.88(b) Future value of an ordinary annuity of $600,000 at 10% for 15 years ($600,000 X 31.77248) $19,063,488.00Deficiency ($20,000,000 – $19,063,488) $936,512.00(c) $70,000 discounted at 8% for 10 years: $70,000 X .46319 = $32,423.30Accept the bonus of $40,000 now. (Also, consider whether the 8% is an appropriate discount ratesince the president can probably earn compound interest at ahigher rate without too much additional risk.) EXERCISE 68 (10–15 minutes) (a) Present value of an ordinary annuity of 1 for 4 periods @ 8% 3.31213Annual withdrawal X $20,000Required fund balance on June 30, 2013 $66,242.60(b) Fund balance at June 30, 2013 $66,242.60 Future value of an ordinary annuity at 8%4.50611 = $14,700.62 for 4 years Amount of each of four contributions is $14,700.62 EXERCISE 611 (10–15 minutes) (a) Total interest = Total payments—Amount owed today $162,745.30 (10 X $16,274.53) – $100,000 = $62,745.30. (b) Sosa should borrow from the bank, since the 9% rate is lower than the manufacturer’s 10% rate determined below....
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This note was uploaded on 01/20/2011 for the course ACC 301 taught by Professor Staff during the Fall '08 term at Kentucky.
 Fall '08
 Staff
 Accounting

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