Question 1

If Sloane Joyner invests $10,514.81 now and she will receive $30,000 at the end of 11 years, what annual rate of interest will she be earning on her investment?
A) 8%
B) 8.5%
C) 9%
D) 10%

Accepted Answer

The answer of If Sloane Joyner invests $10,514.81 now and...

Question 2

Which of the following discount rates will produce the smallest present value?
A) 8%
B) 9%
C) 10%
D) 4%

Accepted Answer

A higher discount rate reduces the present value of future cash flows more than a lower discount rate. Therefore, among the given options, 10% will produce the smallest present value.

Question 3

The amount you must deposit now in your savings account, paying 5% interest, in order to accumulate $10,000 for your first tuition payment when you start college in 3 years is
A) $8,500.
B) $7,830.
C) $8,638.
D) $8,860.

Accepted Answer

We can use the present value formula: PV = FV/(1 + r)^n
where PV is the present value (amount to be deposited now), FV is the future value ($10,000), r is the interest rate (0.05), and n is the number of years (3).

Plugging in the values, we get:
PV = 10000/(1 + 0.05)^3
PV = 10000/1.157625
PV = $8637.91

Therefore, the amount you must deposit now is $8,638, which is closest to choice C.

Question 4

Present value is based on
A) the dollar amount to be received.
B) the length of time until the amount is received.
C) the interest rate.
D) All of these answer choices are correct.

Accepted Answer

All of the answer choices are correct because the present value is based on the dollar amount to be received, the length of time until the amount is received, and the interest rate. All three factors are taken into consideration when calculating present value.

Question 5

The amount you must deposit now in your savings account, paying 6% interest, in order to accumulate $6,000 for a down payment 5 years from now on a new car is
A) $1,200.
B) $4,484.
C) $4,477.
D) $4,200.

Accepted Answer

To find the present value (the amount you must deposit now) to accumulate a future sum, you use the formula for the present value of a single sum: PV = FV / (1 + r)^n, where PV is the present value, FV is the future value ($6000), r is the interest rate per period (6% or 0.06), and n is the number of periods (5 years). Plugging in the values: PV = $6000 / (1 + 0.06)^5 ≈ $4484.

Question 6

If the single amount of $4,000 to be received in 2 years is discounted at 11%, its present value is
A) $3,636.
B) $3,246.
C) $3,604.
D) $5,508.

Accepted Answer

The answer of If the single amount of $4,000 to...

Question 7

The future value of an annuity factor for 2 periods is equal to
A) 1 plus the interest rate.
B) 2 plus the interest rate.
C) 2 minus the interest rate.
D) 2.

Accepted Answer

The answer of The future value of an annuity factor...

Question 8

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?
A) $48,867
B) $315,000
C) $377,337
D) $450,000

Accepted Answer

Using the formula for compound interest:
$A=P(1+r)^n$, where A is the balance, P is the principle, r is the interest rate, and n is the number of years.

After 10 years, the principle will be $30,000 * 10 = $300,000. Plugging in the values we get:

$A=300,000(1+0.05)^{10}$

Simplifying, we get:

$A=300,000(1.62889462677) \approx$ $ \boxed{	ext{(C)}\ 377,337}$

Question 9

Which table has a factor of 1.00000 for 1 period at every interest rate?
A) Future value of 1
B) Future value of an annuity of 1
C) Present value of 1
D) Present value of an annuity of 1

Accepted Answer

The answer of Which table has a factor of 1.00000...

Question 10

If the single amount of $3,000 is to be received in 3 years and discounted at 6%, its present value is
A) $2,519.
B) $2,830.
C) $2,600.
D) $2,820.

Accepted Answer

Using the present value formula, PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the time period:

PV = 3000 / (1 + 0.06)^3
PV = 3000 / 1.191016
PV = $2,518.63, which rounds to $2,519. Therefore, the correct answer is choice A.

Question 11

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is computed by multiplying
A) $20,000 by the future value of 1 factor.
B) $100,000 by 1.04.
C) $100,000 by 1.20.
D) $20,000 by the future value of an annuity factor.

Accepted Answer

The question asks for the balance in the fund at the end of 5 years, which implies an annuity. The annual deposit of $20,000 makes this an ordinary annuity, and we need to find the future value of these payments at the end of 5 years with 4% interest compounded annually. Therefore, we need to multiply $20,000 by the future value of an annuity factor. Choice A is incorrect because it ignores the compounding of interest. Choice B is incorrect because it assumes there is only one deposit of $100,000, which is not true. Choice C is incorrect because it does not take into account the interest earned on the deposits.

Question 12

If you are able to earn an 8% rate of return, what amount would you need to invest to have $30,000 one year from now?
A) $27,747
B) $27,778
C) $27,273
D) $29,700

Accepted Answer

To find the amount needed to invest to achieve $30,000 in one year, we can use the formula:
Future Value = Present Value x (1 + Rate of Return)
Re-arranging the formula, we get:
Present Value = Future Value / (1 + Rate of Return)
Substituting the given values, we get:
Present Value = 30,000 / (1 + 0.08) = $27,777.78, which is closest to option B ($27,778).

Question 13

All of the following are necessary to compute the future value of a single amount except the
A) interest rate.
B) number of periods.
C) principal.
D) maturity value.

Accepted Answer

The future value formula only requires knowledge of the principal (present value), interest rate, and number of periods to calculate the future value. The maturity value is simply the future value of the principal plus any interest earned, so it is not necessary to have this information in order to calculate the future value.

Question 14

Suppose you have a winning lottery ticket and you have the option of accepting $3,000,000 three years from now or taking the present value of the $3,000,000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is
A) $2,518,858.
B) $2,591,520.
C) $2,670,000.
D) $3,000,000.

Accepted Answer

To find the present value, we need to use the formula:
PV = FV / (1+r)^n
where PV is the present value, FV is the future value, r is the discount rate, and n is the number of years.

In this case, FV is $3,000,000, r is 6%, and n is 3.

So, PV = $3,000,000 / (1+0.06)^3 = $2,518,858.

Therefore, the best choice is to take the present value now, which is $2,518,858.

Question 15

Dexter Company is considering purchasing equipment. The equipment will produce the following cash flows: $\begin{array}{ll}
\text { Year 1 } & \$ 90,000 \
\text { Year 2 } & \$ 150,000
\end{array}$ Dexter requires a minimum rate of return of 10%. What is the maximum price Dexter should pay for this equipment?
A) $205,785
B) $123,968
C) $240,000
D) $120,000

Accepted Answer

The maximum price Dexter should pay is the present value of the cash flows at the required rate of return of 10%. Calculating the present value: Year 1: $ \frac{90,000}{1.1} = 81,818.18 $, Year 2: $ \frac{150,000}{(1.1)^2} = 123,966.94 $. Total present value = $205,785.12, which rounds to $205,785.

Question 16

In present value calculations, the process of determining the present value is called
A) allocating.
B) pricing.
C) negotiating.
D) discounting.

Accepted Answer

The process of determining the present value involves discounting future cash flows back to their present value, hence the answer is D, discounting.

Question 17

The present value of $10,000 to be received in 5 years will be smaller if the discount rate is
A) increased.
B) decreased.
C) not changed.
D) equal to the stated rate of interest.

Accepted Answer

When the discount rate (also known as the opportunity cost of capital) is increased, the present value of future cash flows decreases. This is because the higher the discount rate, the more heavily the future cash flow is discounted back to its present value. Therefore, if the discount rate is increased, the present value of $10,000 to be received in 5 years will be smaller.

Question 18

If you are able to earn a 15% rate of return, what amount would you need to invest to have $15,000 one year from now?
A) $14,852
B) $13,125
C) $12,750
D) $13,044

Accepted Answer

To calculate the amount needed to invest, we use the formula: investment amount = desired future value / (1 + rate of return)
Plugging in the given values, we get:
investment amount = 15000 / (1 + 0.15)
investment amount = 15000 / 1.15
investment amount = $13,043.48, which rounds up to $13,044. Therefore, the best choice is D.

Question 19

Which of the following is not necessary to know in computing the future value of an annuity?
A) Amount of the periodic payments
B) Interest rate
C) Number of compounding periods
D) Year the payments begin

Accepted Answer

The year the payments begin is not necessary to know in computing the future value of an annuity. However, the amount of periodic payments, interest rate, and number of compounding periods are essential factors in determining the future value of an annuity.

Question 20

Which of the following accounting problems does not involve a present value calculation?
A) The determination of the market price of a bond.
B) The determination of the declining-balance depreciation expense.
C) The determination of the amount to report for non-current notes payable.
D) The determination of the amount to report for lease liability.

Accepted Answer

The answer of Which of the following accounting problems does...

Quiz 15: Accounting Principles and Contingent Liabilities in Business Operations

If Sloane Joyner invests $10,514.81 now and she will receive $30,000 at the end of 11 years, what annual rate of interest will she be earning on her investment?

Which of the following discount rates will produce the smallest present value?

The amount you must deposit now in your savings account, paying 5% interest, in order to accumulate $10,000 for your first tuition payment when you start college in 3 years is

Present value is based on

The amount you must deposit now in your savings account, paying 6% interest, in order to accumulate $6,000 for a down payment 5 years from now on a new car is

If the single amount of $4,000 to be received in 2 years is discounted at 11%, its present value is

The future value of an annuity factor for 2 periods is equal to

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

Which table has a factor of 1.00000 for 1 period at every interest rate?

If the single amount of $3,000 is to be received in 3 years and discounted at 6%, its present value is

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is computed by multiplying

If you are able to earn an 8% rate of return, what amount would you need to invest to have $30,000 one year from now?

All of the following are necessary to compute the future value of a single amount except the

In present value calculations, the process of determining the present value is called

The present value of $10,000 to be received in 5 years will be smaller if the discount rate is

If you are able to earn a 15% rate of return, what amount would you need to invest to have $15,000 one year from now?

Which of the following is not necessary to know in computing the future value of an annuity?

Which of the following accounting problems does not involve a present value calculation?