On May 1, 2007, a company purchased a new machine which it does not have to pay for until May 1, 2009. The total payment on May 1, 2009 will included…

On May 1, 2007, a company purchased a new machine which it does not have to pay for until May 1, 2009. The total payment on May 1, 2009 will included both principle and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor?Chapter 6 ExamMarie Bruns Started: October 13, 2010 3:43 PM Questions: 20 Ann Ruth wants to invest a certain sum of money at the end of each year for five years. The investment will earn 6% compounded annually. At the end of five years, she will need a total of $40,000 accumulated. How should she compute her required annual invest-ment? a. $40,000 times the future value of a 5-year, 6% ordinary annuity of 1. b. $40,000 divided by the future value of a 5-year, 6% ordinary annuity of 1. c. $40,000 times the present value of a 5-year, 6% ordinary annuity of 1. d. $40,000 divided by the present value of a 5-year, 6% ordinary annuity of 1. Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $21,000 for 15 years and to have a resale value of $40,000 at the end of that period. Assume a 10% rate and earnings at year end. The present value of 1 at 10% for 15 periods is .23939. The present value of an ordinary annuity at 10% for 15 periods is 7.60608. The future value of 1 at 10% for 15 periods is 4.17725. a. $159,728 b. $169,303 c. $185,276 d. $324,576 A machine is purchased by making payments of $5,000 at the beginning of each of the next five years. The interest rate was 10%. The future value of an ordinary annuity of 1 for five periods is 6.10510. The present value of an ordinary annuity of 1 for five periods is 3.79079. What was the cost of the machine? a. $33,578 b. $30,526 c. $20,849 d. $18,954 Which of the following tables would show the smallest factor for an interest rate of 10% for six periods? a. Future value of an ordinary annuity of 1 b. Present value of an ordinary annuity of 1 c. Future value of an annuity due of 1 d. Present value of an annuity due of 1 Apply to the appropriate use of interest tables. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items is based on 8% interest compounded annually.Periods Future Value of 1 at 8% 1.080 1.166 1.260 1.360 1.469 Reference: Ref 6-1If $4,000 is put in a savings account today, what amount will be available six years from now? a. $4,000 × 1.080 × 6 b. $4,000 × 1.080 × 1.469 c. $4,000 × 1.166 × 3 d. $4,000 × 1.260 × 2 On January 1, 2007, Lex Co. sold goods to Eaton Company. Eaton signed a noninterest-bearing note requiring payment of $80,000 annually for seven years. The first payment was made on January 1, 2007. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows: Present Value Present Value of Ordinary Period of 1 at 10% Annuity of 1 at 10% 6 .5645 4.3553 7 .5132 4.8684 Lex should record sales revenue in January 2007 of a. $428,419. b. $389,472. c. $348,424. d. $285,600. Apply to the appropriate use of interest tables. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items is based on 8% interest compounded annually.Periods Future Value of 1 at 8% 1.080 1.166 1.260 1.360 1.469 Reference: Ref 6-1What amount should be deposited in a bank account today to grow to $10,000 three years from today? a. $10,000 × 1.260 b. $10,000 × 1.260 × 3 c. $10,000 ÷ 1.260 d. $10,000 ÷ 1.080 × 3 Which of the following is true? a. Rents occur at the beginning of each period of an ordinary annuity. b. Rents occur at the end of each period of an annuity due. c. Rents occur at the beginning of each period of an annuity due. d. None of these. If a savings account pays interest at 4% compounded quarterly, then the amount of $1 left on deposit for 8 years would be found in a table using a. 8 periods at 4%. b. 8 periods at 1%. c. 32 periods at 4%. d. 32 periods at 1%. On June 1, 2006, Walsh Company sold some equipment to Fischer Company. The two companies entered into an installment sales contract at a rate of 8%. The contract required 8 equal annual payments with the first payment due on June 1, 2006. What type of compound interest table is appropriate for this situation? a. Present value of an annuity due of 1 table. b. Present value of an ordinary annuity of 1 table. c. Future amount of an ordinary annuity of 1 table. d. Future amount of 1 table. Apply to the appropriate use of present value tables. Given below are the present value factors for $1.00 discounted at 10% for one to five periods. Each of the items is based on 10% interest compounded annually.Present Value of $1 Discounted at 10% per Period 0.909 0.826 0.751 0.683 0.621 Reference: Ref 6-2What amount should be deposited in a bank today to grow to $3,000 three years from today? a. $3,000 ÷ 0.751 b. $3,000 × 0.909 × 3 c. ($3,000 × 0.909) + ($3,000 × 0.826) + ($3,000 × 0.751) d. $3,000 × 0.751 On January 1, 2007, Nott Co. sold to Day Corp. $400,000 of its 10% bonds for $354,118 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Nott report as interest expense for the six months ended June 30, 2007? a. $17,706 b. $20,000 c. $21,247 d. $24,000 Which of the following transactions would best use the present value of an annuity due of 1 table? a. Diamond Bar, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be made at the beginning of each year. b. Michener Co. rents a warehouse for 7 years with annual rental payments of $120,000 to be made at the end of each year. c. Durant, Inc. borrows $20,000 and has agreed to pay back the principal plus interest in three years. d. Babbitt, Inc. wants to deposit a lump sum to accumulate $50,000 for the construction of a new parking lot in 4 years. On January 1, 2007, Abel Co. exchanged equipment for a $160,000 noninterest-bearing note due on January 1, 2010. The prevailing rate of interest for a note of this type at January 1, 2007 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Abel’s 2008 income statement? a. $0 b. $12,000 c. $13,200 d. $16,000 Apply to the appropriate use of interest tables. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items is based on 8% interest compounded annually.Periods Future Value of 1 at 8% 1.080 1.166 1.260 1.360 1.469 Reference: Ref 6-1What amount will be in a bank account three years from now if $6,000 is invested each year for four years with the first investment to be made today? a. ($6,000 × 1.260) + ($6,000 × 1.166) + ($6,000 × 1.080) + $6,000 b. $6,000 × 1.360 × 4 c. ($6,000 × 1.080) + ($6,000 × 1.166) + ($6,000 × 1.260) + ($6,000 × 1.360) d. $6,000 × 1.080 × 4 Windsor Company will receive $100,000 in 7 years. If the appropriate interest rate is 10%, the present value of the $100,000 receipt is a. $51,000. b. $51,316. c. $151,000. d. $194,872. Which statement is false? a. The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate. b. The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate. c. The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period. d. The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period. On May 1, 2007, a company purchased a new machine which it does not have to pay for until May 1, 2009. The total payment on May 1, 2009 will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money factor? a. Future value of annuity of 1 b. Future value of 1 c. Present value of annuity of 1 d. Present value of 1 Which of the following statements is true? a. The higher the discount rate, the higher the present value. b. The process of accumulating interest on interest is referred to as discounting. c. If money is worth 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today. d. If a single sum is due on December 31, 2010, the present value of that sum decreases as the date draws closer to December 31, 2010. How much must be invested now to receive $10,000 for 15 years if the first $10,000 is received today and the rate is 9%? Present Value of Periods Ordinary Annuity at 9% 14 7.78615 15 8.06069 16 8.31256 a. $80,607 b. $87,862 c. $150,000 d. $73,125







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