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intermediate accounting ifrs, chapter 6, computational
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Terms in this set (84)
Stemway requires a new manufacturing facility. Management found three locations: all of which would provide needed capacity, the only difference is the price. Location A may be purchased for $500,000. Location B may be acquired with a down payment of $100,000 and annual payments at the end of each of the next twenty years of $50,000. Location C requires $40,000 payments at the beginning of each of the next twenty-five years. Assuming Stemway's borrowing costs are 8% per annum, which option is the least costly to the company?
a. Location A.
b. Location B.
c. Location C.
d. Location A and Location B.
c
What amount should an individual have in a 10% bank account today before withdrawal if $5,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.)
a. $5,000 + ($5,000 × 0.909) + ($5,000 × 0.826) + ($5,000 × 0.751)
b. $5,000 ÷ 0.683 × 4
c. ($5,000 × 0.909) + ($5,000 × 0.826) + ($5,000 × 0.751) + ($5,000 × 0.683)
d. $5,000 ÷ 0.909 × 4
a
104. Pearson Corporation makes an investment today (January 1, 2012). They will receive $10,000 every December 31st for the next six years (2012 - 2017). If Pearson wants to earn 12% on the investment, what is the most they should invest on January 1, 2012?
a. $41,114.
b. $46,048.
c. $81,152.
d. $90,890.
a
105. Garretson Corporation will receive $10,000 today (January 1, 2010), and also on each January 1st for the next five years (2013 - 2017). What is the present value of the six $10,000 receipts, assuming a 12% interest rate?
a. $41,114.
b. $46,048.
c. $81,152.
d. $90,890.
b
106. Hiller Corporation makes an investment today (January 1, 2012). They will receive $20,000 every December 31st for the next six years (2012 - 2017). If Hiller wants to earn 12% on the investment, what is the most they should invest on January 1, 2012?
a. $82,228.
b. $92,096.
c. $162,304.
d. $181,780.
a
107. What amount should be recorded as the cost of a machine purchased December 31, 2010, which is to be financed by making 8 annual payments of $6,000 each beginning December 31, 2011? The applicable interest rate is 8%.
a. $42,000
b. $37,481
c. $63,820
d. $34,480
d
108. How much must be deposited on January 1, 2010 in a savings account paying 6% annually in order to make annual withdrawals of $20,000 at the end of the years 2010 and 2011? The present value of one at 6% for one period is .9434.
a. $36,668
b. $37,740
c. $40,000
d. $17,800
a
109. How much must be invested now to receive $10,000 for 15 years if the first $10,000 is received today and the rate is 9%?
Present Value of
Periods Ordinary Annuity at 9%
14 7.78615
15 8.06069
16 8.31256
a. $80,607
b. $87,862
c. $150,000
d. $73,125
b
110. Jenks Company financed the purchase of a machine by making payments of $18,000 at the end of each of five years. The appropriate rate of interest was 8%. The future value of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8% is 3.99271. What was the cost of the machine to Jenks?
a. $26,448
b. $71,869
c. $90,000
d. $105,600
b
111. A machine is purchased by making payments of $5,000 at the beginning of each of the next five years. The interest rate was 10%. The future value of an ordinary annuity of 1 for five periods is 6.10510. The present value of an ordinary annuity of 1 for five periods is 3.79079. What was the cost of the machine?
a. $33,578
b. $30,526
c. $20,849
d. $18,954
c
112. Lane Co. has a machine that cost $200,000. It is to be leased for 20 years with rent received at the beginning of each year. Lane wants a return of 10%. Calculate the amount of the annual rent.
Present Value of
Period Ordinary Annuity
19 8.36492
20 8.51356
21 8.64869
a. $21,356
b. $23,909
c. $29,728
d. $23,492
d
113. Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $21,000 for 15 years and to have a resale value of $40,000 at the end of that period. Assume a 10% rate and earnings at year end. The present value of 1 at 10% for 15 periods is .23939. The present value of an ordinary annuity at 10% for 15 periods is 7.60608. The future value of 1 at 10% for 15 periods is 4.17725.
a. $159,728
b. $169,303
c. $185,276
d. $324,576
b
114. John won a lottery that will pay him $100,000 at the end of each of the next twenty years. Assuming an appropriate interest rate is 8% compounded annually, what is the present value of this amount?
a. $1,060,360.
b. $21,455.
c. $981,815.
d. $4,576,196.
c
115. Jonas won a lottery that will pay him $100,000 at the end of each of the next twenty years. Zebra Finance has offered to purchase the payment stream for $1,359,000. What interest rate (to the nearest percent) was used to determine the amount of the payment?
a. 7%.
b. 6%.
c. 5%.
d. 4%.
d
116. James leases a ski chalet to his best friend, Janet. The lease term is five years with $22,000 annual payments due at the beginning of each year. What is the present value of the payments discounted at 8% per annum?
a. $94,867.
b. $87,840.
c. $83,981.
d. $79,736.
a
117. Jeremy is in the process of purchasing a car. The list price of the car is $32,000. 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 $6,850 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?
a. 5%.
b. 6%.
c. 7%.
d. 8%.
b
118. What would you pay for an investment that pays you $10,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.
a. $83,658.
b. $720,524.
c. $10,367.
d. $74,694.
d
119. What would you pay for an investment that pays you $12,000 at the beginning of each year for the next ten years? Assume that the relevant interest rate for this type of investment is 10%.
a. $73,734.
b. $81,108.
c. $77,941.
d. $85,735.
b
120. Ziggy is considering purchasing a new car. The cash purchase price for the car is $28,000. What is the annual interest rate if Ziggy is required to make annual payments of $6,500 at the end of the next five years?
a. 4%.
b. 5%.
c. 6%.
d. 7%.
b
121. Charlie Corp. is purchasing new equipment with a cash cost of $100,000 for the assembly line. The manufacturer has offered to accept $22,960 payments at the end of each of the next six years. What is the interest rate that Charlie Corp. will be paying?
a. 8%.
b. 9%.
c. 10%.
d. 11%.
c
122. Jeremy Leasing purchases and then leases small aircraft to interested parties. The company is currently determining the required rental for a small aircraft that cost them $400,000. If the lease is for twenty years and annual lease payments are required to be made at the end of each year, what will be the annual rental if Jeremy wants to earn a return of 10%?
a. $42,713.
b. $46,984.
c. $6,984.
d. $20,209.
b
123. For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?
a. A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.
b. A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.
c. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%.
d. A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.
a
124. On January 15, 2012, Dolan Corp. adopted a plan to accumulate funds for environmental improvements beginning July 1, 2016, at an estimated cost of $4,000,000. Dolan plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually. The first deposit was made on July 1, 2012. Future value factors are as follows:
Future value of 1 at 10% for 5 periods 1.61
Future value of ordinary annuity of 1 at 10% for 4 periods 4.64
Future value of annuity due of 1 at 10% for 4 periods 5.11
Dolan should make four annual deposits of
a. $711,618.
b. $782,779.
c. $862,069.
d. $1,000,000.
b
125. On December 30, 2012, AGH, Inc. purchased a machine from Grant Corp. in exchange for a zero-interest-bearing note requiring eight payments of $50,000. The first payment was made on December 30, 2012, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:
Present Value of Ordinary Present Value of
Period Annuity of 1 at 11% Annuity Due of 1 at 11%
7 4.712 5.231
8 5.146 5.712
On AGH's December 31, 2012 balance sheet, the net note payable to Grant is
a. $235,600.
b. $257,300.
c. $261,775.
d. $285,600.
a
126. On January 1, 2012, Ott Co. sold goods to Flynn Company. Flynn signed a zero-interest-bearing note requiring payment of $80,000 annually for seven years. The first payment was made on January 1, 2012. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows:
Present Value Present Value of Ordinary
Period of 1 at 10% Annuity of 1 at 10%
6 .5645 4.3553
7 .5132 4.8684
Ott should record sales revenue in January 2012 of
a. $428,424.
b. $389,472.
c. $348,424.
d. $285,600.
a
127. On July 1, 2012, Ed Wynne signed an agreement to operate as a franchisee of Kwik Foods, Inc., for an initial franchise fee of $180,000. Of this amount, $60,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of $30,000 beginning July 1, 2013. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Wynne's credit rating indicates that he can borrow money at 14% for a loan of this type. Information on present and future value factors is as follows:
Present value of 1 at 14% for 4 periods 0.59
Future value of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at 14% for 4 periods 2.91
Wynne should record the acquisition cost of the franchise on July 1, 2012 at
a. $130,800.
b. $147,300.
c. $180,000.
d. $202,800.
b
128. Which of the following is false?
a. The future value of a deferred annuity is the same as the future value of an annuity not deferred.
b. A deferred annuity is an annuity in which the rents begin after a specified number of periods.
c. To compute the present value of a deferred annuity, we compute the present value of an ordinary annuity of 1 for the entire period and subtract the present value of the rents which were not received during the deferral period.
d. If the first rent is received at the end of the sixth period, it means the ordinary annuity is deferred for six periods.
d
129. On January 2, 2010, Wine Corporation wishes to issue $2,000,000 (par value) of its 8%, 10-year bonds. The bonds pay interest annually on January 1. The current yield rate on such bonds is 10%. Using the interest factors below, compute the amount that Wine will realize from the sale (issuance) of the bonds.
Present value of 1 at 8% for 10 periods 0.4632
Present value of 1 at 10% for 10 periods 0.3855
Present value of an ordinary annuity at 8% for 10 periods 6.7101
Present value of an ordinary annuity at 10% for 10 periods 6.1446
a. $2,000,000
b. $1,754,136
c. $2,000,012
d. $2,212,052
b
130. The market price of a $200,000, ten-year, 12% (pays interest semiannually) bond issue sold to yield an effective rate of 10% is
a. $224,578.
b. $224,925.
c. $226,654.
d. $374,472.
b
131. Stech Co. is issuing $2.6 million 12% bonds in a private placement on July 1, 2010. Each $1,000 bond pays interest semi-annually on December 31 and June 30 of each year. The bonds mature in ten years. At the time of issuance, the market interest rate for similar types of bonds was 8%. What is the expected selling price of the bonds?
a. $3,306,705.
b. $5,426,797.
c. $3,297,839.
d. $3,324,385.
a
132. On January 1, 2012, Haley Co. issued ten-year bonds with a face amount of $4,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:
At 8% At 10%
Present value of 1 for 10 periods 0.463 0.386
Present value of an ordinary annuity of 1 for 10 periods 6.710 6.145
The total issue price of the bonds was
a. $4,000,000.
b. $3,920,000.
c. $3,680,000.
d. $3,510,400.
d
133. Moore Industries manufactures exercise equipment. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's exercise equipment. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $2,000,000 of 11% bonds on March 1, 2010, due on March 1, 2025, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. What is the selling price of the bonds?
a. $2,220,000
b. $1,269,776
c. $2,153,730
d. $1,690,970
c
134. Reegan Company owns a trade name that was purchased in an acquisition of Hamilton Company. The trade name has a book value of $3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Reegan must estimate the fair value of the trade name. It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Reegan's estimate of annual cash flows over the next 7 years. The trade name is assumed to have no residual value after the 7 years. (Assume the cash flows occur at the end of each year.)
Probability Assessment Cash Flow Estimate
30% $480,000
50% 730,000
20% 850,000
Reegan determines that the appropriate discount rate for this estimation is 6%. To the nearest dollar, what is the estimated fair value of the trade name?
a. $3,500,000
b. $ 679,000
c. $2,060,000
d. $3,790,436
d
135. Jamison Company uses iGAAP for its financial reporting. It produces machines that sell globally. All sales are accompanied by a one-year warranty. At the end of the year, the company has the following data:
2,000 units were sold during the year.
The trend over the past five years has been that 4% of the machines were defective in some way and had to be repaired. Of this 4%, half required a full replacement at a cost of $3,000 per unit and half were able to be repaired at an average cost of $300.
What is the expected value of the warranty cost provision?
a. $240,000
b. $132,000
c. $264,000
d. $120,000
b
136. Techtronics, a technology company that uses iGAAP for its financial reporting, has been found to have polluted the property surrounding its plant. The property is leased for 12 years and Techtronics has agreed that when the lease expires, the pollution will be remediated before transfer back to its owner. The lease has a renewal option for another 8 years. If this option is exercised, the cleanup will be done at the end of the renewal period. There is a 70% chance that the lease will not be renewed and the cleanup will cost $120,000. There is 30% chance that the lease will be renewed and the cleanup costs will be $250,000 at the end of the 20 years. If you assume that these estimates are derived from best estimates of likely outcomes and the risk-free rate is 5%, the expected present value of the cleanup provision is:
a. $159,000
b. $75,042
c. $185,000
d. $151,050
b
47. Assume ABC Company deposits $25,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually. How much will ABC have in the account after five years if interest is reinvested?
a. $33,598.
b. $25,000.
c. $32,500.
d. $33,456.
a
48. If a savings account pays interest at 4% compounded quarterly, then the amount of $1 left on deposit for 8 years would be found in a table using
a. 8 periods at 4%.
b. 8 periods at 1%.
c. 32 periods at 4%.
d. 32 periods at 1%.
d
49. On May 1, 2012, a company purchased a new machine which it does not have to pay for until May 1, 2014. The total payment on May 1, 2014 will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor?
a. Future value of annuity of 1
b. Future value of 1
c. Present value of annuity of 1
d. Present value of 1
d
P50. In the time diagram below, which concept is being depicted?
0
1
$1
2
$1
3
$1
4
$1
PV
a. Present value of an ordinary annuity
b. Present value of an annuity due
c. Future value of an ordinary annuity
d. Future value of an annuity due
a
51. If the number of periods is known, the interest rate is determined by
a. dividing the future value by the present value and looking for the quotient in the future value of 1 table.
b. dividing the future value by the present value and looking for the quotient in the present value of 1 table.
c. dividing the present value by the future value and looking for the quotient in the future value of 1 table.
d. multiplying the present value by the future value and looking for the product in the present value of 1 table.
a
P52. Which of the following statements is true?
a. The higher the discount rate, the higher the present value.
b. The process of accumulating interest on interest is referred to as discounting.
c. If money is worth 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.
d. If a single sum is due on December 31, 2010, the present value of that sum decreases as the date draws closer to December 31, 2010.
c
53. What is the relationship between the future value of one and the present value of one?
a. The present value of one equals the future value of one plus one.
b. The present value of one equals one plus future value factor for n-1 periods.
c. The present value of one equals one divided by the future value of one.
d. The present value of one equals one plus the future value factor for n+1 value
c
54. Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank. Which time value concept would be used to determine the maturity value of the certificate?
a. Present value of one.
b. Future value of one.
c. Present value of an annuity due.
d. Future value of an ordinary annuity.
b
55. 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?
a. The options are equivalent.
b. Insufficient information to determine.
c. The signing bonus of $23,000 payable on the first day of work.
d. The signing bonus of $26,000 payable after one year of employment.
d
Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 56 to 58 is based on 8% interest compounded annually.
Periods Future Value of 1 at 8%
1 1.080
2 1.166
3 1.260
4 1.360
5 1.469
56. What amount should be deposited in a bank account today to grow to $10,000 three years from today?
a. $10,000 × 1.260
b. $10,000 × 1.260 × 3
c. $10,000 ÷ 1.260
d. $10,000 ÷ 1.080 × 3
c
. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 56 to 58 is based on 8% interest compounded annually.
Periods Future Value of 1 at 8%
1 1.080
2 1.166
3 1.260
4 1.360
5 1.469
57. If $3,000 is put in a savings account today, what amount will be available three years from today?
a. $3,000 ÷ 1.260
b. $3,000 × 1.260
c. $3,000 × 1.080 × 3
d. ($3,000 × 1.080) + ($3,000 × 1.166) + ($3,000 × 1.260)
b
. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 56 to 58 is based on 8% interest compounded annually.
Periods Future Value of 1 at 8%
1 1.080
2 1.166
3 1.260
4 1.360
5 1.469
58. If $4,000 is put in a savings account today, what amount will be available six years from now?
a. $4,000 × 1.080 × 6
b. $4,000 × 1.080 × 1.469
c. $4,000 × 1.166 × 3
d. $4,000 × 1.260 × 2
b
Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 59 to 61 is based on 10% interest compounded annually.
Present Value of $1
Periods Discounted at 10% per Period
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621
59. If an individual put $4,000 in a savings account today, what amount of cash would be available two years from today?
a. $4,000 × 0.826
b. $4,000 × 0.826 × 2
c. $4,000 ÷ 0.826
d. $4,000 ÷ 0.909 × 2
c
Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 59 to 61 is based on 10% interest compounded annually.
Present Value of $1
Periods Discounted at 10% per Period
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621
60. What is the present value today of $6,000 to be received six years from today?
a. $6,000 × 0.909 × 6
b. $6,000 × 0.751 × 2
c. $6,000 × 0.621 × 0.909
d. $6,000 × 0.683 × 3
c
Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 59 to 61 is based on 10% interest compounded annually.
Present Value of $1
Periods Discounted at 10% per Period
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621
61. What amount should be deposited in a bank today to grow to $3,000 three years from today?
a. $3,000 ÷ 0.751
b. $3,000 × 0.909 × 3
c. ($3,000 × 0.909) + ($3,000 × 0.826) + ($3,000 × 0.751)
d. $3,000 × 0.751
d
62. At the end of two years, what will be the balance in a savings account paying 6% annually if $5,000 is deposited today? The future value of one at 6% for one period is 1.06.
a. $5,000
b. $5,300
c. $5,600
d. $5,618
d
63. Mordica Company will receive $100,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $100,000 receipt is
a. $51,000.
b. $51,316.
c. $151,000.
d. $194,872.
b
64. Dunston Company will receive $100,000 in a future year. If the future receipt is discounted at an interest rate of 10%, its present value is $51,316. In how many years is the $100,000 received?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
c
65. Milner Company will invest $200,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In 5 years, the amount in the investment fund is
a. $200,000.
b. $260,000.
c. $267,646.
d. $268,058.
c
66. Barber Company will receive $500,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $500,000 receipt is
a. $255,000.
b. $256,580.
c. $755,000.
d. $974,360.
b
67. Barkley Company will receive $100,000 in a future year. If the future receipt is discounted at an interest rate of 8%, its present value is $63,017. In how many years is the $100,000 received?
a. 5 years
b. 6 years
c. 7 years
d. 8 years
b
68. Altman Company will invest $300,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In 5 years, the amount in the investment fund is
a. $300,000.
b. $390,000.
c. $401,469.
d. $402,087.
c
69. John Jones won a lottery that will pay him $1,000,000 after twenty years. Assuming an appropriate interest rate is 5% compounded annually, what is the present value of this amount?
a. $1,000,000.
b. $2,653,300.
c. $12,462,210.
d. $376,890.
d
70. Angie invested $50,000 she received from her grandmother today in a fund that is expected to earn 10% per annum. To what amount should the investment grow in five years if interest is compounded semi-annually?
a. $77,567.
b. $80,525.
c. $81,445.
d. $88,578.
c
71. Bella requires $80,000 in four years to purchase a new home. What amount must be invested today in an investment that earns 6% interest, compounded annually?
a. $63,367.
b. $65,816.
c. $96,891.
d. $100,998.
a
72. What interest rate (the nearest percent) must Charlie earn on a $75,000 investment today so that he will have $190,000 after 12 years?
a. 6%.
b. 7%.
c. 8%.
d. 9%.
c
73. Ethan has $20,000 to invest today at an annual interest rate of 4%. Approximately how many years will it take before the investment grows to $40,500?
a. 18 years.
b. 20 years.
c. 16 years.
d. 11 years.
a
74. Jane wants to set aside funds to take an around the world cruise in four years. Assuming that Jane has $5,000 to invest today in an account expected to earn 6% per annum, how much will she have to spend on her vacation?
a. $3,960.
b. $6,312.
c. $21,873.
d. $6,691.
b
75. Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need $12,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?
a. $2,663.
b. $16,325.
c. $8,820.
d. $8,167.
c
76. What would you pay for an investment that pays you $1,000,000 after forty years? Assume that the relevant interest rate for this type of investment is 6%.
a. $31,180.
b. $311,800.
c. $97,220.
d. $103,670.
c
77. What would you pay for an investment that pays you $10,000 at the end of each year for the next ten years and then returns a maturity value of $150,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.
a. $69,479.
b. $67,101.
c. $72,468.
d. $136,579.
d
78. Anna has $60,000 to invest. She requires $100,000 for a down payment for a house. If she is able to invest at 6%, how many years will it be before she will accumulate the desired balance?
a. 6 years.
b. 7 years.
c. 8 years.
d. 9 years.
d
79. On January 1, 2012, Ball Co. exchanged equipment for a $160,000 zero-interest-bearing note due on January 1, 2015. The prevailing rate of interest for a note of this type at January 1, 2012 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Ball's 2013 income statement?
a. $0
b. $12,000
c. $13,200
d. $16,000
c
80. If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the new models are next available, which time value concept would be used to determine the monthly payment?
a. Present value of one.
b. Future value of one.
c. Present value of an annuity due.
d. Future value of an ordinary annuity.
d
81. Betty wants to know how much she should begin saving each month to fund her retirement. What kind of problem is this?
a. Present value of one.
b. Future value of an ordinary annuity.
c. Present value of an ordinary annuity.
d. Future value of one.
b
P82 If the interest rate is 10%, the factor for the future value of annuity due of 1 for n = 5, i = 10% is equal to the factor for the future value of an ordinary annuity of 1 for n = 5, i = 10%
a. plus 1.10.
b. minus 1.10.
c. multiplied by 1.10.
d. divided by 1.10.
c
83. Which statement is false?
a. The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate.
b. The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate.
c. The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period.
d. The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period.
b
84. What amount will be in an 8% bank account three years from now if $6,000 is invested each year for four years with the first investment to be made today?
a. ($6,000 × 1.260) + ($6,000 × 1.166) + ($6,000 × 1.080) + $6,000
b. $6,000 × 1.360 × 4
c. ($6,000 × 1.080) + ($6,000 × 1.166) + ($6,000 × 1.260) + ($6,000 × 1.360)
d. $6,000 × 1.080 × 4
a
85. Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $250,000 in eighteen years. If they are able to earn 6% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education?
a. $8,089.
b. $7,631.
c. $13,889.
d. $7,405.
b
86. Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $350,000 in eighteen years. If they are able to earn 5% per annum, how much must be deposited at the end of each of the next eighteen years to fund the education?
a. $13,554.
b. $29,941.
c. $28,960.
d. $12,441.
d
87. Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need $12,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she need to set aside at the beginning of each year to accumulate sufficient funds?
a. $2,663.
b. $16,325.
c. $8,820.
d. $2,466.
d
88. Spencer Corporation will invest $10,000 every December 31st for the next six years (2012 - 2017). If Spencer will earn 12% on the investment, what amount will be in the investment fund on December 31, 2017?
a. $41,114.
b. $46,048.
c. $81,152.
d. $90,890.
c
89. Tipson Corporation will invest $10,000 every January 1st for the next six years (2012 - 2017). If Linton will earn 12% on the investment, what amount will be in the investment fund on December 31, 2017?
a. $41,114
b. $46,048.
c. $81,152.
d. $90,890.
d
90. Renfro Corporation will invest $30,000 every December 31st for the next six years (2012 - 2017). If Renfro will earn 12% on the investment, what amount will be in the investment fund on December 31, 2017?
a. $123,342
b. $138,144.
c. $243,456.
d. $272,670.
c
91. Vannoy Corporation will invest $25,000 every January 1st for the next six years (2012 - 2017). If Wagner will earn 12% on the investment, what amount will be in the investment fund on December 31, 2017?
a. $102,785.
b. $115,120.
c. $202,880.
d. $227,225.
d
92. On January 1, 2012, Kline Company decided to begin accumulating a fund for asset replacement five years later. The company plans to make five annual deposits of $50,000 at 9% each January 1 beginning in 2012. What will be the balance in the fund, within $10, on January 1, 2017 (one year after the last deposit)? The following 9% interest factors may be used.
Present Value of Future Value of
Ordinary Annuity Ordinary Annuity
4 periods 3.2397 4.5731
5 periods 3.8897 5.9847
6 periods 4.4859 7.5233
a. $326,166
b. $299,235
c. $272,500
d. $250,000
a
Present Value of Future Value of
Ordinary Annuity Ordinary Annuity
7 periods 5.2064 8.92280
8 periods 5.7466 10.63663
9 periods 6.2469 12.48756
93. What will be the balance on September 1, 2018 in a fund which is accumulated by making $8,000 annual deposits each September 1 beginning in 2011, with the last deposit being made on September 1, 2018? The fund pays interest at 8% compounded annually.
a. $85,093
b. $71,383
c. $60,480
d. $45,973
a
Present Value of Future Value of
Ordinary Annuity Ordinary Annuity
7 periods 5.2064 8.92280
8 periods 5.7466 10.63663
9 periods 6.2469 12.48756
94. If $5,000 is deposited annually starting on January 1, 2012 and it earns 8%, what will the balance be on December 31, 2019?
a. $44,614
b. $48,183
c. $53,183
d. $57,438
d
Present Value of Future Value of
Ordinary Annuity Ordinary Annuity
7 periods 5.2064 8.92280
8 periods 5.7466 10.63663
9 periods 6.2469 12.48756
95. Korman Company wishes to accumulate $300,000 by May 1, 2019 by making 8 equal annual deposits beginning May 1, 2011 to a fund paying 8% interest compounded annually. What is the required amount of each deposit?
a. $52,205
b. $28,204
c. $26,115
d. $30,234
c
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