Exam 6: Accounting and the Time Value of Money

Barkley Company will receive $400,000 in a future year. If the future receipt is discounted at an interest rate of 8%, its present value is $252,068. In how many years is the $400,000 received?

Future value of an annuity due. (Tables needed.) If $9,000 is deposited annually starting on January 1, 2014 and it earns 9%, how much will accumulate by December 31, 2023?

Jerry recently was offered a position with a major accounting firm. The firm offered Jerry either a signing bonus of $23,000 payable on the first day of work or a signing bonus of $26,000 payable after one year of employment. Assuming that the relevant interest rate is 10%, which option should Jerry choose?

How much must be deposited on January 1, 2014 in a savings account paying 6% annually in order to make annual withdrawals of $30,000 at the end of the years 2014 and 2015? The present value of one at 6% for one period is .9434.

Which of the following statements is true?

In determining present value, a company moves backward in time using a process of accumulation.

On June 1, 2014, Pitts Company sold some equipment to Gannon Company. The two companies entered into an installment sales contract at a rate of 8%. The contract required 8 equal annual payments with the first payment due on June 1, 2014. What type of compound interest table is appropriate for this situation?

Charlie Corp. is purchasing new equipment with a cash cost of $250,000 for the assembly line. The manufacturer has offered to accept $57,400 payments at the end of each of the next six years. What is the interest rate that Charlie Corp. will be paying?

On December 1, 2014, Richards Company sold some machinery to Fleming Company. The two companies entered into an installment sales contract at a predetermined interest rate. The contract required four equal annual payments with the first payment due on December 1, 2014, the date of the sale. What present value concept is appropriate for this situation?

Garretson Corporation will receive $10,000 today (January 1, 2014), and also on each January 1st for the next five years (2015 - 2019). What is the present value of the six $10,000 receipts, assuming a 12% interest rate?

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the future value of the annuity due will be greater than the future value of the ordinary annuity.

Present value of an annuity due.(Tables needed.) How much must be invested now to receive $30,000 for ten years if the first $30,000 is received today and the rate is 8%?

John Jones won a lottery that will pay him $3,000,000 after twenty years. Assuming an appropriate interest rate is 5% compounded annually, what is the present value of this amount?

Spencer Corporation will invest $20,000 every December 31st for the next six years (2014 - 2019). If Spencer will earn 12% on the investment, what amount will be in the investment fund on December 31, 2019?

Use the following 8% interest factors for questions 102 through 105. -What will be the balance on September 1, 2020 in a fund which is accumulated by making $20,000 annual deposits each September 1 beginning in 2013, with the last deposit being made on September 1, 2020? The fund pays interest at 8% compounded annually.

Compute loan payments. (Tables needed.) On January 2, 2014, Jensen Company borrowed $120,000 from Lyon Country Bank. The terms of the loan agreement specified 4 equal annual payments at 6% annual interest. Computer the amount of each of these payments, assuming, they begin on December 31, 2014.

If the number of periods is known, the interest rate is determined by

Ethan has $160,000 to invest today at an annual interest rate of 4%. Approximately how many years will it take before the investment grows to $324,000?

James leases a ski chalet to his best friend, Janet. The lease term is five years with $20,000 annual payments due at the beginning of each year. What is the present value of the payments discounted at 8% per annum?

Jeremy is in the process of purchasing a car. The list price of the car is $42,000. If Jeremy pays cash for the car, the dealer will reduce the price by 10%. Otherwise, the dealer will provide financing where Jeremy must pay $8,990 at the end of each of the next five years. Compute the effective interest rate to the nearest percent that Jeremy would pay if he chooses to make the five annual payments?