What would be the second year future value? (LG4-3) FV = 750 × (1 + 0.10) (1 + 0.12) 750 × 1.10 × 1.12 Answer: 924.00 4-11 Present Value What is the present value of a $1,500 payment made in six years when the discount rate is 8 percent? (LG4-4) PV = 1500/(1+0.08)6 1500/1.586874323 Answer: 945.25 4-13 Present Value with Different Discount Rates Compute the present value of $1,000 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year. (LG4-4) PV = 1000 / ((1 + 0.06) (1 +0.07) (1 + 0.08)) 1000/ (1.06 × 1.07 × 1.08) 1000/1.224936 Answer: 816.37 4-16 Rule of 72 Approximately how many years are needed to double a $500 investment when interest rates are 10 percent per year? (LG4-6) N=72 / 10 Answer: 7.2 4-31 Solving for Time How many years (and months) will it take $2 million to grow to $5 million with an annual interest rate of 7 percent?
Expected inflation rate is 3%. Operating cost expected to be $4,000 per day and to increase at a rate 1% above inflation. Maintenance days: Initial 8 days, 12 days after 5 years and 16 days after 10 years annually. Capital Expenditure in 2007: $300,000 and 2012: $350,000. These expenditures will be depreciated on a straight line basis over 5 years.
TIME VALUE OF MONEY Assignment 1. What is the present value of: a. $8,000 in 10 years at 6% b. $16,000 in 5 years at 12% c. $25,000 in 15 years at 8% d. $1,000 in 40 periods at 20% 2. If you invest $12,000 today, how much will you have: a.
1. Your savings of $200,000 is earning 8% interest. A. If retirement is scheduled in 15 years and inflation is expected to average 5% annually during that period, will you have accumulated the $300,000 in purchasing power that you deem necessary? If not, by how much will you be short?
If the required rate of return on the stock is 20%, what is the current value of the stock today? A) $30 B) $50 C) $100 D) $54 E) None of the above Answer: B Response: P = (6/(0.2-0.08) = 50 5. WorldTour Co. has just now paid a dividend of $6 per share (Do), the dividends are expected to grow at a constant rate of 5% per year forever. If the required rate of return on the stock is 15%, what is the current value on stock (after paying the dividend)? A) $63 B) $56 C) $40 D) $48 E) None of the above Answer: A Response: P = (6*1.05)/(0.15 0.05) = 63 6.
Week 3 – Assignment 1 – Problem 5-24 Determining account balances: percent of revenue allowance method of accounting for uncollectible accounts. A. Compute the following amounts. 1. Using the allowance method, the amount of uncollectible accounts expense for 2012. The estimate of bad debts expense was .5% (which equals .005) of sales on account.
It originally cost $180,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero salvage value. In 2010, the decision was made to shorten the total life of this asset to 9 years and to estimate the salvage value at $3,000 3. Depreciable asset C was purchased January 5, 2006. The asset's original cost was $160,000 and this amount was entirely expensed in 2006.
Suppose that four of them have identical coupon rates of 7.25% but mature on four different dates. One matures in 2 years, one in 5 years, one in 10 years, and the last in 20 years. Assume that they all made coupon payments yesterday. If the yield curve were flat and all four bonds had the same yield to maturity of 9%, what would be the fair price of each bond today? Suppose that during the first hour of operation of the capital markets today, the term structure shifts and the yield to maturity
D) multiplying the present value by the future value and looking for the product in the present value of 1 table. 4. 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? A) $20,000 times the future value of a 5-year, 10% ordinary annuity of 1.
Danko uses a predetermined overhead rate to apply overhead to units produced. As of January 1, 2010, Danko anticipated incurring 1,000 hours of direct labor. Danko estimated overhead for 2010 of $5,000 plus $8 per hour. 4. Danko incurred depreciation of $8,000 during 2010, of which $6,000 was factory depreciation and $2,000 was office depreciation.