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

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Edition: 6th Edition

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

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.

  1. $10,000 x 2.59374 = $25,937 (rounded to the nearest dollar).
  2. $8,000 x .38554 = $3,084 (rounded to the nearest dollar).
  3. 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
  1. $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.

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