Solution Manual for Fundamentals of Financial Accounting 6th Edition by Phillips

Solution Manual for Fundamentals of Financial Accounting 6th Edition by Phillips

Solution Manual for Fundamentals of Financial Accounting 6th Edition by Phillips
Fundamentals of Financial Accounting 6th Edition by Phillips – Solution Manual
Fundamentals of Financial Accounting 6th Edition
Fundamentals of Financial Accounting

Appendix C

Present and Future Value Concepts

ANSWERS TO QUESTIONS

1. The time value of money is the idea that a dollar received today is worth more than a dollar to be received at any later date because it can be invested today to earn interest over time.
2. Future value—The future value of a number of dollars is the amount that it will increase to in the future at i interest rate for n periods. The future value is the principal plus accumulated interest compounded each period.

Present value—The present value of a number of dollars, to be received at some specified date in the future, is that amount discounted to the present at i interest rate for n periods. It is the inverse of future value. In compound discounting, the interest is subtracted rather than added as in compounding.

3. $10,000 x 2.59374 = $25,937 (rounded to the nearest dollar).
4. $8,000 x .38554 = $3,084 (rounded to the nearest dollar).
5. An annuity is a term that refers to equal periodic cash payments or receipts of an equal amount each period for two or more periods. In contrast to a future value of $1, or a present value of $1 (which involves a single contribution or amount), an annuity involves a series of equal contributions for a series of equal periods. An annuity may refer to a future value or a present value.

 

6.					Table Values
	Concept				i = 5% n =4		i = 10%; n =7		i = 14%; n = 10
	FV of $1				1.21551		1.94872		3.70722
	PV of $1				0.82270		0.51316		0.26974
	FV of annuity of $1				4.31013		9.48717		19.33730
	PV of annuity of $1				3.54595		4.86842		5.21612

7. $1,000 x 14.48656 = $14,487. (rounded to the nearest dollar)

 

Authors’ Recommended Solution Time

(Time in minutes)

 

 

Mini-exercises		Exercises		Problems
No.	Time	No.	Time	No.	Time
1	2	1	10	CP1	20
2	2	2	15	CP2	20
3	6	3	15	CP3	20
4	6	4	15	CP4	15
5 6 7 8 9 10 11 12	3 3 3 3 3 3 3 3	5 6 7	5 10 8	PA1 PA2 PA3 PA4 PB1 PB2 PB3 PB4	20 20 20 15 20 20 20 15

 

 

 

 

 

ANSWERS TO MINI-EXERCISES

MC–1            

$500,000 ´ 0.46319 (Table C.2, n=10, i=8%)

=

$231,595

MC–2            

$15,000 ´   6.14457 (Table C.4, n=10, i=10%)

=

$92,169

MC–3

$100,000 (no PV)	=	$100,000
$100,000 ´ 0.92593 (Table C.2, n=1, i=8%)	=	92,593
$ 30,000 ´ 9.81815 (Table C.4, n=20, i=8%)	=	294,545
Total	=	$487,138

MC–4

$25,000 ´ 15.93742 (Table C.3, n=10, i=10%)	=		$398,436
$15,000 ´ 57.27500 (Table C.3, n=20, i=10%)	=	$859,125

It is much better to save $15,000 for 20 years.