Question 1

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?

Accepted Answer

Location C is the least costly when considering the present value of all payments at an 8% annual discount rate. Payments at the beginning of each period are more favorable due to the time value of money, making the total cost of Location C lower when discounted back to present value terms compared to the lump sum payment for Location A and the structured payments for Location B.

Question 2

Use the following 8% interest factors for questions . 
-What will be the balance on September 1, 2021 in a fund which is accumulated by making $20,000 annual deposits each September 1 beginning in 2014, with the last deposit being made on September 1, 2021? The fund pays interest at 8% compounded annually.

Accepted Answer

The answer of Use the following 8% interest factors for...

Question 3

On January 1, 2015, Kline Company decided to begin accumulating a fund for asset replacement five years later.The company plans to make five annual deposits of $80,000 at 9% each January 1 beginning in 2015.What will be the balance in the fund, within $10, on January 1, 2020 (one year after the last deposit)? The following 9% interest factors may be used.

Accepted Answer

The answer of On January 1, 2015, Kline Company decided...

Question 4

Vannoy Corporation will invest $50,000 every January 1st for the next six years (2015 - 2020).If Wagner will earn 12% on the investment, what amount will be in the investment fund on December 31, 2020?

Accepted Answer

The future value of an annuity is calculated using the formula:FV = P * [(1 + r)^n - 1] / rwhere:P is the amount of each paymentr is the annual interest raten is the number of paymentsIn this case, P = $50,000, r = 12%, and n = 6. Plugging these values into the formula, we get:FV = $50,000 * [(1 + 0.12)^6 - 1] / 0.12= $50,000 * [2.0557 - 1] / 0.12= $50,000 * 1.0557 / 0.12= $205,570Therefore, the amount in the investment fund on December 31, 2020 will be $205,570.

Question 5

Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the end of each year for five years.How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually?

Accepted Answer

To find the required initial investment, we need to calculate the present value of an annuity that pays $20,000 annually for five years at a 10% annual interest rate. This can be done using the formula for the present value of an ordinary annuity:
PV = PMT x [1 - (1+r)^-n] / r
where PV is the present value, PMT is the annuity payment, r is the interest rate, and n is the number of periods.
Substituting the values, we get:
PV = $20,000 x [1 - (1+0.10)^-5] / 0.10
PV = $20,000 x [1 - 0.6209] / 0.10
PV = $20,000 x 3.791
PV = $75,820.61
Therefore, the required initial investment at the beginning of the first year is $75,820.61, which is option C.

Question 6

Use the following 8% interest factors for questions . 
-If $10,000 is deposited annually starting on January 1, 2015 and it earns 8%, what will the balance be on December 31, 2022?

Accepted Answer

The answer of Use the following 8% interest factors for...

Question 7

Sue Gray wants to invest a certain sum of money at the end of each year for five years.The investment will earn 6% compounded annually.At the end of five years, she will need a total of $40,000 accumulated.How should she compute her required annual invest-ment?

Accepted Answer

The required annual investment can be calculated by dividing the total accumulated amount needed ($40,000) by the future value of a 5-year, 6% ordinary annuity of 1. This is because each annual investment will earn 6% compounded annually and will accumulate over five years to reach the total desired amount. Therefore, the formula to use is: required annual investment = total accumulated amount needed / future value of annuity.

Question 8

Use the following 8% interest factors for questions . 
-Korman Company wishes to accumulate $500,000 by May 1, 2022 by making 8 equal annual deposits beginning May 1, 2014 to a fund paying 8% interest compounded annually.What is the required amount of each deposit?

Accepted Answer

To find the required amount of each deposit, we use the future value of an annuity formula: FV = Pmt * [(1 + r)^n - 1] / r. Here, FV = $500,000, r = 0.08, and n = 8. Solving for Pmt gives approximately $43,525.

Question 9

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?

Accepted Answer

The correct answer is A because it accounts for the compound interest on each £6,000 investment at an 8% annual rate over the different periods they are invested. The first £6,000 is invested for four years, the second for three years, the third for two years, and the last for one year. The formula used calculates the future value of each investment separately and then sums them up.

Question 10

Jane wants to set aside funds to take an around the world cruise in four years.Jane expects that she will need $15,000 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?

Accepted Answer

To accumulate $15,000 in four years, Jane needs to save $3,750 each year ($15,000 divided by 4 years).

Now we have to figure out how much she needs to set aside at the beginning of each year, assuming she earns 8% per annum on her investment. This is a basic annuity problem, where we need to find the present value of a series of payments.

Using the formula for present value of an annuity:

PV = Payment * (1 - (1 + r)^-n) / r

where PV is the present value, Payment is the yearly payment amount, r is the annual interest rate, and n is the number of years.

Plugging in the numbers:

PV = $3,750 * (1 - (1 + 0.08)^-4) / 0.08
PV = $11,025

Therefore, Jane needs to set aside $11,025 at the beginning of each year to accumulate sufficient funds for her dream vacation. The answer is (C).

Question 11

Lucy and Fred want to begin saving for their baby's college education.They estimate that they will need $300,000 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?

Accepted Answer

The answer of Lucy and Fred want to begin saving...

Question 12

What is the relationship between the present value factor of an ordinary annuity and the present value factor of an annuity due for the same interest rate?

Accepted Answer

The present value factor of an annuity due is always greater than the present value factor of an ordinary annuity for the same interest rate and time periods. Specifically, the annuity due factor equals one plus the ordinary annuity factor for n periods. Therefore, choice B is correct. The other choices are incorrect.

Question 13

Paula purchased a house for $300,000.After providing a 20% down payment, she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month.Which time value concept would be used to determine the monthly payment?

Accepted Answer

The monthly payment is determined by the present value of an ordinary annuity. This is because the loan requires equal monthly installments, and the present value of those payments must be equal to the loan amount.

Question 14

Renfro Corporation will invest $40,000 every December 31st for the next six years (2015 - 2020).If Renfro will earn 12% on the investment, what amount will be in the investment fund on December 31, 2020?

Accepted Answer

The answer of Renfro Corporation will invest $40,000 every December...

Question 15

If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates, then

Accepted Answer

CAn annuity due involves payments at the beginning of each period, while an ordinary annuity involves payments at the end. For the present value, payments made sooner (as in an annuity due) are worth more today due to the time value of money, making the present value of an annuity due greater than that of an ordinary annuity. For the future value, both types of annuities will have different future values due to the timing of payments, but the statement C is incorrect as it suggests equality; the correct relationship is that the future value of an annuity due is greater because payments have more time to earn interest. However, since this specific comparison was not an option, the correct understanding is that their future values are not equal, with the annuity due generally having a higher future value.

Question 16

Which statement is false?

Accepted Answer

The answer of Which statement is false?
...

Question 17

Spencer Corporation will invest $20,000 every December 31st for the next six years (2015 - 2020).If Spencer will earn 12% on the investment, what amount will be in the investment fund on December 31, 2020?

Accepted Answer

The future value of an annuity formula is used here: FV = Pmt * [(1 + r)^n - 1] / r. Plugging in the values: Pmt = $20,000, r = 0.12, n = 6, we get FV = $20,000 * [(1.12)^6 - 1] / 0.12 = $181,780.

Question 18

Tipson Corporation will invest $30,000 every January 1st for the next six years (2015 - 2020).If Linton will earn 12% on the investment, what amount will be in the investment fund on December 31, 2020?

Accepted Answer

The answer of Tipson Corporation will invest $30,000 every January...

Question 19

An accountant wishes to find the present value of an annuity of $1 payable at the beginning of each period at 10% for eight periods.The accountant has only one present value table which shows the present value of an annuity of $1 payable at the end of each period.To compute the present value, the accountant would use the present value factor in the 10% column for

Accepted Answer

The correct approach is to use the present value factor for eight periods and then multiply by (1 + .10) because the payments are made at the beginning of each period, effectively moving the entire annuity one period forward in time, which is equivalent to multiplying by (1 + the interest rate).

Question 20

Lucy and Fred want to begin saving for their baby's college education.They estimate that they will need $200,000 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?

Accepted Answer

Using the present value of an annuity formula, we can calculate the amount Lucy and Fred need to deposit at the beginning of each year to reach their goal. The formula is:

PMT = PV * (r / (1 - (1 + r)^-n))

Where:
PMT = the annual payment
PV = the present value or target amount (€200,000)
r = the annual interest rate (6% or 0.06)
n = the number of periods (18 years)

Plugging in the values, we get:

PMT = 200,000 * (0.06 / (1 - (1 + 0.06)^-18))
PMT = 200,000 * (0.06 / 10.236)
PMT = 1,176.47

This means that Lucy and Fred need to deposit €1,176.47 at the beginning of each of the next eighteen years to fund their baby's education. However, none of the answer choices match this amount exactly. The closest option is B, which is €6,105. If we multiply that amount by the interest rate of 6%, we get:

€6,105 * 0.06 = €366.30

So the total amount after 18 years would be:

€6,105 + €366.30 = €6,471.30

This is slightly higher than the required annual payment of €6,471. Therefore, B is the best choice.

Quiz 6: Accounting and the Time Value of Money

Vannoy Corporation will invest $50,000 every January 1st for the next six years (2015 - 2020) .If Wagner will earn 12% on the investment, what amount will be in the investment fund on December 31, 2020?

Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the end of each year for five years.How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually?

Use the following 8% interest factors for questions . -If $10,000 is deposited annually starting on January 1, 2015 and it earns 8%, what will the balance be on December 31, 2022?

Sue Gray wants to invest a certain sum of money at the end of each year for five years.The investment will earn 6% compounded annually.At the end of five years, she will need a total of $40,000 accumulated.How should she compute her required annual invest-ment?

Use the following 8% interest factors for questions . -Korman Company wishes to accumulate $500,000 by May 1, 2022 by making 8 equal annual deposits beginning May 1, 2014 to a fund paying 8% interest compounded annually.What is the required amount of each deposit?