Chapter 06 - Homework Solutions

# Chapter 06- - 6-1CHAPTER 6 Accounting and the Time Value of Money SOLUTIONS TO EXERCISES EXERCISE 6-1(5–10 minutes(a(b Rate of InterestNumber of

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Unformatted text preview: 6-1CHAPTER 6 Accounting and the Time Value of Money SOLUTIONS TO EXERCISES EXERCISE 6-1 (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 6-3 (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. 6-2EXERCISE 6-6 (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 6-8 (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 6-11 (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.

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Chapter 06- - 6-1CHAPTER 6 Accounting and the Time Value of Money SOLUTIONS TO EXERCISES EXERCISE 6-1(5–10 minutes(a(b Rate of InterestNumber of

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