Time Value of Money Solutions to Brief Exercises

APPENDIX E

Time Value of Money SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE E-1 (a) Interest = p X i X n I = $9,000 X .05 X 12 years I = $5,400 Accumulated amount = $9,000 + $5,400 = $14,400 (b) Future value factor for 12 periods at 5% is 1.79586 (from Table 1) Accumulated amount = $9,000 X 1.79586 = $16,162.74

BRIEF EXERCISE E-2 (1) Case A Case B 5% 6% 3 periods 8 periods (2) Case A Case B 3% 4% 8 periods 12 periods

BRIEF EXERCISE E-3 FV = p X FV of 1 factor = $8,400 X 1.60103 = $13,448.65

BRIEF EXERCISE E-4 FV of an annuity of 1 = p X FV of an annuity factor = $60,000 X 16.86994 = $1,012,196.40

Copyright © 2013 John Wiley & Sons, Inc.

Weygandt Financial, IFRS, 2/e, Solution’s Manual

(For Instructor Use Only)

E-1

BRIEF EXERCISE E-5 FV = p X FV of 1 factor + (p X FV of an annuity factor) = ($5,000 X 2.40662) + ($1,000 X 28.13238) = $12,033.10 + $28,132.38 = $40,165.48

BRIEF EXERCISE E-6 FV = p X FV of 1 factor = $35,000 X 1.46933 = $51,426.55

BRIEF EXERCISE E-7 (a) 12% 8% 3% 10% 10% 4% (b) 7 periods 11 periods 16 periods 20 periods 7 periods 10 periods

(1) CASE A CASE B CASE C (2) CASE A CASE B CASE C

BRIEF EXERCISE E-8 (a) ? 0 1 2 3 4 5 6 7 8 i = 10% $25,000 9

Discount rate from Table 3 is .42410 (9 periods at 10%). Present value of $25,000 to be received in 9 years discounted at 10% is therefore $10,602.50 ($25,000 X .42410).

E-2

Copyright © 2013 John Wiley & Sons, Inc.

Weygandt Financial, IFRS, 2/e, Solution’s Manual

(For Instructor Use Only)

BRIEF EXERCISE E-8 (Continued) (b)

?

i = 9%

$25,000 $25,000 $25,000 $25,000 $25,000 $25,000

0

1

2

3

4

5

6

Discount rate from Table 4 is 4.48592 (6 periods at 9%). Present value of 6 payments of $25,000 each discounted at 9% is therefore $112,148.00 ($25,000 X 4.48592). BRIEF EXERCISE E-9 i = 8%

? $750,000

0

1

2

3

4

5

6

Discount rate from Table 3 is .63017 (6 periods at 8%). Present value of $750,000 to be received...