Solutions Manual for Financial Accounting Tools for Business Decision Making 7th Edition by Kimmel Weygandt and Kieso Link download full: https://testbankservice.com/download/solutions-manual-for-financial-accountingtools-for-business-decision-making-7th-edition-by-kimmel-weygandt-and-kieso/
APPENDIX D Time Value of Money Learning Objectives 1. 2. 3. 4. 5. 6. 7. 8.
Distinguish between simple and compound interest. Solve for future value of a single amount. Solve for future value of an annuity. Identify the variables fundamental to solving present value problems. Solve for present value of a single amount. Solve for present value of an annuity. Compute the present value of notes and bonds. Use a financial calculator to solve time value of money problems.
Summary of Questions by Learning Objectives and Bloom’s Taxonomy Item LO BT Item LO BT Item LO BT Brief Exercises 1. 2 AP 8. 5, 6 AP 14. 5, 6, AP 7 2. 2, 3 C 9. 5 AP 3. 2 AP 10. 5 AP 15. 5, 6, AP 7 4. 3 AP 11. 6 AP 5. 2, 3 AP 12. 6 AP 16. 5, 6, AP 7 6. 2 AP 13. 5, 6, AP 7 7. 5, 6 C 17. 6, 7 AP
Item LO BT Item LO BT 18. 6 19. 6, 7 20. 5 21. 5 22. 6 23. 6 24. 8
AP AP AN AN AN AN AP
25. 26. 27. 28.
8 8 8 8
AP AP AP AP
SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE D-1 (a)
Interest = p X i X n I = $8,000 X .05 X 12 years I = $4,800 Accumulated amount = $8,000 + $4,800 = $12,800
(b) Future value factor for 12 periods at 5% is 1.79586 (from Table 1) Accumulated amount = $8,000 X 1.79586 = $14,366.88
BRIEF EXERCISE D-2
(1) A B
(a)
(b)
6% 4%
3 periods 8 periods
(a) (2) A B
(b) 5% 3%
8 periods 12 periods
BRIEF EXERCISE D-3 FV = p X FV of 1 factor = $9,200 X 1.60103 = $14,729.48
BRIEF EXERCISE D-4 FV of an annuity of 1
D-2
= p X FV of an annuity factor = $78,000 X 12.57789 = $981,075.42
Copyright © 2013 John Wiley & Sons, Inc.
Kimmel, Financial Accounting,7/e, Solutions Manual
(For Instructor Use Only)
BRIEF EXERCISE D-5 FV = p X FV of 1 factor + (p X FV of an annuity factor) = ($6,000 X 2.02582) + ($1,000 X 25.64541) = $12,154.92 + $25,645.41 = $37,800.33
BRIEF EXERCISE D-6 FV = p X FV of 1 factor = $34,000 X 1.53862 = $52,313.08
BRIEF EXERCISE D-7 (a) (1) A B C
12% 10% 3%
(b) 6 periods 11 periods 18 periods
(2) A B C
12% 10% 4%
20 periods 5 periods 8 periods
BRIEF EXERCISE D-8 (a)
i = 10% ?
0
$28,000
1
2
3
4
5
6
7
8
9
Discount rate from Table 3 is .42410 (9 periods at 10%). Present value of $28,000 to be received in 9 years discounted at 10% is therefore $11,874.80 ($28,000 X .42410).
BRIEF EXERCISE D-8 (Continued) (b)
i = 9% ?
$28,000
$28,000
$28,000
$28,000
$28,000
$28,000
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 $28,000 each discounted at 9% is therefore $125,605.76 ($28,000 X 4.48592).
BRIEF EXERCISE D-9 i = 9% ?
$750,000
0
1
2
3
4
5
Discount rate from Table 3 is .64993 (5 periods at 9%). Present value of $750,000 to be received in 5 years discounted at 9% is therefore $487,447.50 ($750,000 X .64993). Elmdale Company should therefore invest $487,447.50 to have $750,000 in five years.
BRIEF EXERCISE D-10 i = 10% ?
$480,000
0
1
2
3
4
5
6
7
8
Discount rate from Table 3 is .46651 (8 periods at 10%). Present value of $480,000 to be received in 8 years discounted at 10% is therefore $223,924.80 ($480,000 X .46651). Orear Company should invest $223,924.80 to have $480,000 in eight years.
D-4
Copyright Š 2013 John Wiley & Sons, Inc.
Kimmel, Financial Accounting,7/e, Solutions Manual
(For Instructor Use Only)
BRIEF EXERCISE D-11 i = 5% ?
$45,000 $45,000 $45,000 $45,000
0
1
2
3
$45,000 $45,000
4
14
15
Discount rate from Table 4 is 10.37966. Present value of 15 payments of $45,000 each discounted at 5% is therefore $467,084.70 ($45,000 X 10.37966). Dayton Company should pay $467,084.70 for this annuity contract.
BRIEF EXERCISE D-12 i = 8% ?
$90,000
$90,000
$90,000
$90,000
$90,000
$90,000
0
1
2
3
4
5
6
Discount rate from Table 4 is 4.62288. Present value of 6 payments of $90,000 each discounted at 8% is therefore $416,059.20 ($90,000 X 4.62288). Nolasko Enterprises invested $416,059.20 to earn $90,000 per year for six years.
BRIEF EXERCISE D-13 i = 4% ?
$300,000
Diagram for Principal
0
1
2
3
4
19
20
i = 4% ?
$13,500 $13,500 $13,500 $13,500
$13,500 $13,500
Diagram for Interest
0
1
2
3
4
19
Present value of principal to be received at maturity: $300,000 X 0.45639 (PV of $1 due in 20 periods at 4% from Table 3) ........................................................................... Present value of interest to be received periodically over the term of the bonds: $13,500 X 13.59033 (PV of $1 due each period for 20 periods at 4% from Table 4)...................................................................................... Present value of bonds ................................................................................
20
$136,917.00
183,469.45 $320,386.45
BRIEF EXERCISE D-14 The bonds will sell at a discount (for less than $300,000). This may be proven as follows: Present value of principal to be received at maturity: $300,000 X .37689 (PV of $1 due in 20 periods at 5% from Table 3) ........................................................................... Present value of interest to be received periodically over the term of the bonds: $13,500 X 12.46221 (PV of $1 due each period for 20 periods at 5% from Table 4)...................................................................................... Present value of bonds ................................................................................
D-6
Copyright Š 2013 John Wiley & Sons, Inc.
Kimmel, Financial Accounting,7/e, Solutions Manual
$113,067.00
168,239.83 $281,306.83
(For Instructor Use Only)
BRIEF EXERCISE D-15 i = 8% ?
$64,000
Diagram for Principal
0
1
2
3
4
5
6
i = 8% ?
$3,840
$3,840
$3,840
$3,840
$3,840
$3,840
0
1
2
3
4
5
6
Diagram for Interest
Present value of principal to be received at maturity: $64,000 X .63017 (PV of $1 due in 6 periods at 8% from Table 3) ......................................................................... Present value of interest to be received annually over the term of the note: $3,840 X 4.62288 (PV of $1 due each period for 6 periods at 8% from Table 4) ............................................................................. Present value of note received ..................................................................
$40,330.88
17,751.86 $58,082.74
BRIEF EXERCISE D-16 i = 5% ?
$2,600,000
Diagram for Principal
0
1
2
3
4
14
15
16
i = 5% ?
$117,000 $117,000 $117,000 $117,000
$117,000 $117,000 $117,000
Diagram for Interest
0
1
2
3
4
14
15
Present value of principal to be received at maturity: $2,600,000 X 0.45811 (PV of $1 due in 16 periods at 5% from Table 3) ......................................................................... Present value of interest to be received periodically over the term of the bonds: $117,000 X 10.83777 (PV of $1 due each period for 16 periods at 5% from Table 4).................................................................................... Present value of bonds and cash proceeds ................................................
16
$1,191,086*
1,268,019 $2,459,105
BRIEF EXERCISE D-17 i = 10% ?
0
$3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300 $3,300
1
2
3
4
5
6
7
8
Discount rate from Table 4 is 5.33493. Present value of 8 payments of $3,300 each discounted at 10% is therefore $17,605.27 ($3,300 X 5.33493). Phil Emley should not purchase the tire retreading machine because the present value of the future cash flows is less than the $18,000 purchase price of the retreading machine.
D-8
Copyright Š 2013 John Wiley & Sons, Inc.
Kimmel, Financial Accounting,7/e, Solutions Manual
(For Instructor Use Only)
BRIEF EXERCISE D-18 i = 4% ?
$46,850
$46,850
$46,850
$46,850
$46,850
$46,850
0
1
2
3
4
9
10
Discount rate from Table 4 is 8.11090. Present value of 10 payments of $46,850 each discounted at 4% is therefore $379,995.66 ($46,850 X 8.11090). Jamison Company should receive $379,995.66 from the issuance of the note.
BRIEF EXERCISE D-19 i = 10% ?
$38,000
$40,000
$50,000
0
1
2
3
To determine the present value of the future cash flows, discount the future cash flows at 10%, using Table 3. Year 1 ($38,000 X .90909) = Year 2 ($40,000 X .82645) = Year 3 ($50,000 X .75132) = Present value of future cash flows
$ 34,545.42 33,058.00 37,566.00 $105,169.42
To achieve a minimum rate of return of 10%, Pendley Company should pay no more than $105,169.42. If Pendley pays less than $105,169.42, its rate of return will be greater than 10%.
BRIEF EXERCISE D-20 i=? $4,172.65
0
$10,000
1
2
3
4
14
15
Present value = Future value X Present value of 1 factor $4,172.65 = $10,000 X Present value of 1 factor Present value of 1 factor= $4,172.65 ÷ $10,000 = .41727 The .41727 for 15 periods is found in the 6% column. Barbara Oxford will receive a 6% return.
BRIEF EXERCISE D-21 i = 10% $25,490
$80,000
n=? Present value = Future value X Present value of 1 factor $25,490 = $80,000 X Present value of 1 factor Present value of 1 factor = $25,490 ÷ $80,000 = .31863 The .31863 at 10% is found in the 12 years row. Blake Mohr therefore must wait 12 years to receive $80,000.
D-10
Copyright © 2013 John Wiley & Sons, Inc.
Kimmel, Financial Accounting,7/e, Solutions Manual
(For Instructor Use Only)
BRIEF EXERCISE D-22 i=? ?
0
$1,000 $1,000 $1,000 $1,000 $1,000 $1,000
1
2
3
4
5
$1,000 $1,000
6
19
20
$9,128.55
Present value = Annuity amount X Present value of an annuity factor $9,128.55 = $1,000 X Present value of an annuity factor Present value of an annuity factor = $9,128.55 รท $1,000 = 9.12855
The 9.12855 for 20 periods is found in the 9% column. Amanda Tevis will therefore earn a rate of return of 9%.
BRIEF EXERCISE D-23 i = 11% $1,000
$1,000
$1,000
$1,000
$1,000
$1,000
$5,146.12 n=? Present value = Annuity amount X Present value of an annuity factor $5,146.12 = $1,000 X Present value of an annuity factor Present value of an annuity factor = $5,146.12 รท $1,000 = 5.14612
The 5.14612 at an interest rate of 11% is shown in the 8-year row. Therefore, Kelly will receive 8 payments.
BRIEF EXERCISE D-24 10
?
–18,000
0
50,000
N
I/YR.
PV
PMT
FV
10.76%
BRIEF EXERCISE D-25 10
?
60,000
–8,860
0
N
I/YR.
PV
PMT
FV
7.80%
BRIEF EXERCISE D-26 40
?
178,000
–8,400
0
N
I/YR.
PV
PMT
FV
3.55% (semiannual)
D-12
Copyright © 2013 John Wiley & Sons, Inc.
Kimmel, Financial Accounting,7/e, Solutions Manual
(For Instructor Use Only)
BRIEF EXERCISE D-27 (a) Inputs:
7
6.9
?
–16,000
0
N
I
PV
PMT
FV
Answer:
86,530.07
(b) Inputs:
Answer:
10
8.65
?
14,000
200,000
N
I
PV
PMT
FV
–178,491.52
BRIEF EXERCISE D-28 (a) Note—set payments at 12 per year. Inputs: 96 7.8
42,000
?
0
N
PV
PMT
FV
I
–589.48
Answer: (b) Note—set payments to 1 per year. Inputs: 5 7.25
8,000
?
0
N
PV
PMT
FV
I
–1,964.20
Answer:
D-14
Copyright © 2013 John Wiley & Sons, Inc.
Kimmel, Financial Accounting,7/e, Solutions Manual
(For Instructor Use Only)