Problem 4:

1. A. 132,000 ( 1.2M + 120,000) x 10%

 1,200,000 x 10% = 120,000

2. B. 4,000 ( 150K – 50K) x 8% x 6/12

150,000 ÷ 3 = 50,000

3. B. 30,053 (300,526 x 10%)

Future cash flow (face amount) 400,000

Multiply by: PV of ₱1 @10%, n=3 0.751314

Present value of note receivable 300,526

4. C. 120,000 gain

5. C. 728,964; 1,423,560 ; 3,380,103

Future cash flow – annual instalments (8M ÷ 4) 2,000,000

Multiply by: PV of an ordinary annuity of ₱1 @12%, n = -4 3.037349

Present value of note receivable 6,074,698

Collections
Date on interests Interest income amortization Present value

Jan. 1,20x1 6,074,698

Dec. 31, 20x1 2,000,000 728,964 1,271,036 4,803,662

Dec. 31 20x2 2,000,000 576,439 1,423,560 3,380,102

 6. A. 127,104

Future cash flow – annual instalments (1M ÷ 5) 200,000

Multiply by: PV of an ordinary annuity of ₱1 @12%, n = -4 3.604478

Present value of note receivable 720,956

7. D. 61,990

Date Collections Interest income amortization Present value

Jan. 1,20x1

Dec. 31, 20x1 200,000 86,515 113,485 607,470

8. C. 72,896; 680,366

9. A. 164,591; 1,241,083
10. B. 438,016

Date Collections PV of ₱1 @ 10% n= 1 to 3* Present value

Dec. 31, 20x1 400,000 0.90909 363,636

Dec. 31, 20x2 300,000 0.82645 247,934

Dec. 31, 20x3 200,000 0.75131 150,263

Totals 900,000 761,833

Date Collections Interest income amortization Present value

Jan. 1,20x1 761,833

Dec. 31, 20x1 400,000 76,183 323,817 438,016

11. A. 1,824,000
 First trial: (at 14%)
 Future cash flows x PV of an ordinary annuity at X% = PV of note
 2,370,470 x PV of an ordinary annuity @ 14%, n= 3 = 1,600,000
 (2,370,470 x 0.674972) = 1,600,000 equal to 1,600,000

12. C. 2,543,685

PV factors
Future cash flows @ 12%, n= 3 Present value

Principal 3,000,000 0.71178 2,135,340

Annual interest (3M x 3%) 90,000 2.40183 216,165

Totals 2,351,505

Collections
Date on interests Interest income amortization Present value

Jan. 1,20x1 2,351,505

Dec. 31, 20x1 90,000 282,181 192,181 2,543,685

13. C. 933,337 (1,311,272 x 0.71178)

1.2M x 103% x103% x103% = 1,311,272

Future cash flow 1,311,272

Multiply by: PV of ₱1 @12%, n=3 0.71178

Present value of note receivable 933,337

14. C. 5,560

15. B. 1,531,779 ; 1,352,039