Deck 15: Appendix C: Accounting and the Time Value of Money

Question 1

Why is one dollar now worth more than one dollar in the future?

A) Funds can be invested in earning assets to yield a positive return
B) The amount to be received in the future is smaller than the amount to be paid off today
C) The value of interest declines over time
D) The time value of money depreciates over long periods of time

Answer 1

Funds can be invested in earning assets to yield a positive return

Question 2

If Best Buy invests $600,000 today at 6% annual interest and the money is compounded semiannually, how much will be in the bank account one year from the date invested?

A) $636,540
B) $648,000
C) $698,880
D) $648,720

Answer 2

$636,540

Question 3

Marshall, Inc. wishes to accumulate $600,000 to be used to pay off a balloon note at the end of 4 years. How much will Marshall invest today to accumulate the desired amount if the investment earns an annual rate of 12% compounded quarterly? (Select the closest amount)

A) $352,000
B) $ 65,248
C) $254,208
D) $373,800

Answer 3

$373,800

Question 4

Marshall, Inc. wishes to accumulate $500,000 to be used to pay off a loan at the end of 10 years. How much will Marshall deposit each year for 10 years, beginning at the end of the first year, to accumulate the desired amount if the investment earns an annual rate of 12%? (Select the closest amount)

A) $22,793
B) $28,492
C) $16,667
D) $13,216

Question 5

Ford Motor Company wants to accumulate $800,000 to pay off an equipment balloon note due in 3 years. How much should Ford Motor Company deposit each quarter beginning one quarter from today to accumulate the amount required if the bank pays 4% annual interest compounded quarterly?

Question 6

General Electric needs to have $100 million accumulated to fund health insurance payments for its retirees. Will General Electric have enough accumulated at the end of 3 years if it deposits $75 million today if compounding occurs semi-annually with an annual rate of 8%?

Question 7

General Electric borrowed $800,000 to buy equipment to be repaid as an installment note monthly over 2.5 years. How much will General Electric pay each month if payments begin one month from now and the loan rate is 12% compounded monthly?

Question 8

General Electric borrowed $300,000,000 to buy equipment with the principal and interest to be repaid as a balloon note at the end of 5 years. How much will General Electric pay to liquidate the principal of the note at the maturity date if interest is 8% compounded quarterly?

Question 9

Compute the present value for each of the following amounts.
a. $100,000 received in 8 years if annual interest rate is: (1) 10% compounded annually or (2) 10% compounded semiannually
b. $10,000 received at the end of each year for the next 4 years if the money is worth 8% per year compounded annually