Question

1.Marigold Corp. will receive $1620000 in 6 years. If the appropriate interest rate is 10%, the present value of the $1620000 receipt is

a.$907200.

b.$914441.

c.$2527200.

d.$2869927.

2.Vaughn Manufacturing will receive $790000 in a future year. If the future receipt is discounted at an interest rate of 9%, its present value is $432154. In how many years is the $790000 received?

a

6 years

b

8 years

c

7 years

d

9 years

Use the following 8% interest factors.

	Present Value of Ordinary Annuity	Future Value of Ordinary Annuity
7 periods	5.20637	8.92280
8 periods	5.74664	10.63663
9 periods	6.24689	12.48756

3.What amount should be recorded as the cost of a machine purchased December 31, 2020, which is to be financed by making 8 annual payments of $21500 each beginning December 31, 2021? The applicable interest rate is 8%.

a

$134308

b

$228688

c

$123553

d

$150500

4.For which of the following transactions would the use of the present value of an ordinary annuity concept be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?

a	A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.

b	A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 9%.

c	A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 2 and July 1 yielding 7%.

d	A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement.

Answer 1

1).

b.$914441.

Present value	=	Cash flow in future years	*	Discount rate
	=	$       16,20,000	*	0.56447
	=	$          9,14,441
Working;
Discount rate	=	(1+i)^-n		Where,
	=	(1+0.10)^-6		i	=	10%
	=	0.56447		n	=	6

2.

c. 7 Years

2)
	Time	=	=nper(rate,pmt,-pv,fv)		Where,
		=	7 Years		rate	=	9%
					pmt	=	0 (annual payments)
					pv	=	$       4,32,154
					fv	=	$       7,90,000