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Exam 6: Time Value of Money Concepts

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Question 61

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At the end of each quarter, Patti deposits $500 into an account that pays 12% interest compounded quarterly. How much will Patti have in the account in three years?

A) $7,096.
B) $7,013.
C) $7,129.
D) $8,880.FVA = $500 x 14.1920* = $7,096 *FVA of $1: n=12; i=3%

E) All of the above
F) A) and D)

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Question 62

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Simpson Mining is obligated to restore leased land to its original condition after its excavation activities are over in three years. The cash flow possibilities and probabilities for the restoration costs in three years are as follows: The company's credit-adjusted risk-free interest rate is 5%. The liability that Simpson must record at the beginning of the project for the restoration costs is:

A) $ 129,576.
B) $ 145,000.
C) $ 125,257.
D) $ 172,768.

E) All of the above
F) A) and B)

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Question 63

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Provide two examples of the use of present value techniques in accounting.

Kunkle Company wishes to earn 20% annually on its investments. If it makes an investment that equals or exceeds that rate, it considers it a success. Assume that it invests $2 million and gets $500,000 in return at the end of each year fox X years. What is the minimum value of X for which it will consider the investment a success? Assume that it can't invest for fractional parts of a year.

A series of equal periodic payments that starts more than one period after the agreement is called:

Briefly describe the differences between an ordinary annuity, an annuity due, and a deferred annuity.

Monica wants to sell her share of an investment to Barney for $50,000 in three years. If money is worth 6% compounded semiannually, what would Monica accept today?

First Financial Auto Loan Department wishes to know the payment required at the first of each month on a $10,500, 48-month, 11% auto loan. To determine this amount, First Financial would:

With an annuity due, a payment is made or received on the date the agreement begins.

Reba wishes to know how much would be in her savings account if she deposits a given sum in an account and leaves it there at 6% interest for five years. She should use a table for the:

On January 1, 2009, Glanville Company sold goods to Otter Corporation. Otter signed a noninterest-bearing note requiring payment of $15,000 annually for six years. The first payment was made on January 1, 2009. The prevailing rate of interest for this type of note at date of issuance was 8%. Glanville should record the sales revenue in January 2009 of: