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Chapter 6

Time Value of Money Concepts

EXERCISES
Exercise 6-1

1. FV = $50,000 x 2.15892 = $107,946

Future value of $1: n=10, i=8% (from Table 1)

2. FV = $30,000 x 3.20714 = $96,214


Future value of $1: n=20, i=6% (from Table 1)

3. FV = $40,000 x 17.44940 = $697,976


Future value of $1: n=30, i=10% (from Table 1)

4. FV = $60,000 x 1.60103 = $96,062


Future value of $1: n=12, i=4% (from Table 1)

Exercise 6-2

1. PV = $20,000 x .46319 = $9,264

Present value of $1: n=10, i=8% (from Table 2)

2. PV = $10,000 x .31180 = $3,118


Present value of $1: n=20, i=6% (from Table 2)

3. PV = $25,000 x .05731 = $1,433


Present value of $1: n=30, i=10% (from Table 2)

4. PV = $40,000 x .40388 = $16,155


Present value of $1: n=8, i=12% (from Table 2)

Exercise 6-3

1.

PV = $50,000 x .46319 = $23,160

Present value of $1: n=10, i=8% (from Table 2)

2.

$31,947 =
$70,000

.45639

Present value of $1: n=20, i=? (from Table 2, i = approximately 4%)

3.

$ 9,576 =
$40,000

Alternate Exercise and Problem Solutions

.2394
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Present value of $1: n=?, i=10% (from Table 2, n = approximately 15 years)

4.

$ 20,462 =
$100,000

.20462

Present value of $1: n=14, i=? (from Table 2, i = approximately 12%)

5.

FV = $15,000 x 5.74349 = $86,152

Future value of $1: n=30, i=6% (from Table 1)

Exercise

1.
6-4$37,908

PVA = $10,000 x 3.79079

Present value of an ordinary annuity of $1: n=5, i=10% (from Table 4)

2.

PVAD = $10,000 x 4.16986

= $41,699

Present value of an annuity due of $1: n=5, i=10% (from Table 6)

Exercise 6-5

1. PVA = $5,000 x 6.14457

= $30,723

Present value of an ordinary annuity of $1: n=10, i=10% (from Table 4)

2.

$298,058 =
$60,000

4.96764

Present value of an ordinary annuity of $1: n=8, i=? (from Table 4, i =


approximately 12%)

3.

$337,733 =
$30,000

11.25777

Present value of an ordinary annuity of $1: n=?, i= 8% (from Table 4, n =


approximately 30 years)

4.

$600,000 =
$74,435

8.06072

Present value of an ordinary annuity of $1: n=15, i=? (from Table 4, i =


approximately 9%)

5.

$200,000 =
4.11141

$48,645

Present value of an ordinary annuity of $1: n=6, i=12% (from Table 4)

Exercise 6-6

PV

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6-2

.80426=

$4,800

Intermediate Accounting, 7/e

PV

$4,800
.80426

$5,968

Present value of $1: n=11, i=2% (from Table 2)

PVA =

14.99203=

$5,968

annuity amount

PVA =

$5,968
=
14.99203

$398.08

Payment

Present value of an ordinary annuity of $1: n=18, i=2% (from Table 4)

Alternate Exercise and Problem Solutions

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6-3

PROBLEMS
1. PV = $50,000 + ($20,000 x 3.31213 )
Problem 6-1Equipment

= $116,243 =

Present value of an ordinary annuity of $1: n=4, i=8% (from Table 4)

2. $600,000 = Annuity amount x 4.24646


Future value of an ordinary annuity of $1: n=4, i=4% (from Table 3)

Annuity amount = $600 ,000


4.24646
Annuity amount = $141,294 = Required annual deposit

3. Choose the option with the lowest present value of cash outflows.
1. Buy option:
PV = - $2,000,000
2. Lease option:
PVAD = - $200,000 x 9.36492 = - $1,872,984

Present value of an annuity due of $1: n=10, i=10% (from Table 6)

Reuter should lease the machine.

Problem 6-2

Choose the alternative with the highest present value.

Alternative 1:
PV = $400,000
Alternative 2:
PV = PVAD = $40,000 x 10.29498 = $411,799
Present value of an annuity due of $1: n=15, i=6% (from Table 6)

Alternative 3:
PVA = $45,000

9.71225

$437,051

Present value of an ordinary annuity of $1: n=15, i=6% (from Table 4)


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Intermediate Accounting, 7/e

PV

= $437,051

.79209

Present value of $1: n=4, i=6% (from Table 2)

$346,184

Smokey should choose alternative 2.

Alternate Exercise and Problem Solutions

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