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51) Tammy wants to buy a car that costs $10,000 and wishes to know the amount of the monthly
payments, which will be made at the end of the month, with interest of 12% on the unpaid balance.
She should use a table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
52) George Jones is planning on a cruise for his 70th birthday party. He wants to know how much
he should set aside at the end of each month at 6% interest to accumulate the sum of $4,800 in five
years. He should use a table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
53) Zulu Corporation hires a new chief executive officer and promises to pay her a signing bonus
of $2 million per year for 10 years, starting at the end of the first year. The value of this signing
bonus is:
A) The present value of the annuity.
B) The future value of the annuity.
C) $20 million.
D) $0 because no cash is owed immediately.
54) Sandra won $5,000,000 in the state lottery, which she has elected to receive at the end of each
month over the next thirty years. She will receive 7% interest on unpaid amounts. To determine the
amount of her monthly check, she should use a table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
55) Below are excerpts from interest tables for 8% interest.
1
2
3
4
1
1.0000
0.92593
1.08000
0.92593
2
2.0800
0.85734
1.16640
1.78326
3
3.2464
0.79383
1.25971
2.57710
4
4.5061
0.73503
1.36049
3.31213
Column 4 is an interest table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
56) Below are excerpts from interest tables for 8% interest.
1
2
3
4
1
1.0000
0.92593
1.08000
0.92593
2
2.0800
0.85734
1.16640
1.78326
3
3.2464
0.79383
1.25971
2.57710
4
4.5061
0.73503
1.36049
3.31213
Column 1 is an interest table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
57) Quaker State Inc. offers a new employee two options. First, the employee can receive a
one-time signing bonus at the date of employment. Second, the employee can take $8,000 at the
date of employment plus $20,000 at the end of each of his first three years of service. Assuming the
employee's time value of money is 10% annually, what single payment in the first option would be
equal to the total of the payments in the second option? (Use appropriate factor(s) from Table 1,
FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a
separate file.)
A) $23,026.
B) $57,737.
C) $62,711.
D) None of the choices are correct.
58) 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? (Use appropriate
factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of
$1 contained within a separate file.)
A) $7,096.
B) $7,013.
C) $7,129.
D) $8,880.
59) Every six months, Scott deposits $2,500 into an account that pays 10% interest compounded
semi-annually. How much will Scott have in the account in four years? (Use appropriate
factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of
$1 contained within a separate file.)
A) $22,749.
B) $23,873.
C) $23,205.
D) $28,590.
60) Miller borrows $300,000 to be paid off in three years. The loan payments are semiannual with
the first payment due in six months, and interest is at 6%. What is the amount of each payment?
(Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and
Table 4, PVA of $1 contained within a separate file.)
A) $55,379.
B) $106,059.
C) $30,138.
D) $60,276.
61) Claudine Corporation will deposit $5,000 into a money market account at the end of each year
for the next five years. How much will accumulate by the end of the fifth and final payment if the
account earns 9% interest? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV of
$1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $32,617.
B) $29,924.
C) $27,250.
D) $26,800.
62) What is the value today of receiving five annual payments of $500,000, beginning one year
from now, assuming an 11% discount rate? (Use appropriate factor(s) from Table 1, FV of $1;
Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate
file.)
A) $2,500,000.
B) $2,225,000.
C) $1,847,950.
D) $2,115,270.
63) Listed below are ten terms followed by a list of phrases that describe or characterize five of the
terms. Match each phrase with the best term placing the letter designating the term in the space
provided.
Terms:
a. Annuity
b. Future value of a single amount
c. Discount rate
d. Future value of an annuity
e. Interest
f. Compound interest
g. Present value of a single amount
h. Time value of money
i. Simple interest
j. Present value of an annuity
Phrases:
_____ A dollar now is worth more than a dollar later.
_____ A series of equal periodic payments.
_____ Accumulation of a series of equal payments.
_____ Interest earned on the initial investment and on previous interest.
_____ Accumulation of an amount with interest.
64) Listed below are ten terms followed by a list of phrases that describe or characterize five of the
terms. Match each phrase with the best term placing the letter designating the term in the space
provided.
Terms:
a. Annuity
b. Future value of a single amount
c. Discount rate
d. Future value of an annuity
e. Interest
f. Compound interest
g. Present value of a single amount
h. Time value of money
i. Simple interest
j. Present value of an annuity
Phrases:
_____ Amount today equivalent to a specified future amount.
_____ The rate at which future dollars are equal to current dollars.
_____ Interest earned on the initial investment only.
_____ The factor that causes money today to be worth more than
the same amount in the future.
_____ Current worth of a series of equal payments received in the future.
65) Compute the future value of the following invested amounts at the specified periods and
interest rates.
Item
Invested
Amount
Interest
Rate
Number of
Periods
a.
$20,000
8%
10
b.
$30,000
4%
8
c.
$10,000
12%
15
66) Anthony would like to have $18,000 to buy a new car in three years. Currently, he has saved
$15,000. If he puts $15,000 in an account that earns 6% interest, compounded annually, will he be
able to buy the car in three years?
67) Michaela would like to have $10,000 for a European vacation in four years. Currently, she has
saved $8,000. If she puts $8,000 in an account that earns 6% interest, compounded annually, will
she be able to take the vacation in four years?
68) Compute the present value of the following single amounts to be received at the end of the
specified period at the given interest rate.
Item
Invested
Amount
Interest
Rate
Number of
Periods
a.
$40,000
7%
20
b.
$20,000
6%
25
c.
$50,000
11%
10
69) Compute the present value of the following single amounts to be received at the end of the
specified period at the given interest rate.
Item
Invested
Amount
Interest
Rate
Number of
Periods
a.
$1,500
10%
1
b.
$1,500
10%
2
c.
$1,500
10%
3
d.
$1,500
10%
4
70) If you had an investment opportunity that promises to pay you $20,000 in three years and you
could earn a 10% annual return investing your money elsewhere, what is the most you should be
willing to invest today in this opportunity?
71) Touche Manufacturing is considering a rearrangement of its manufacturing operations. A
consultant estimates that the rearrangement should result in after-tax cash savings of $6,000 the
first year, $10,000 for the next two years, and $12,000 for the next two years. Assuming a 12%
discount rate, calculate the total present value of the cash flows.
72) Price Mart is considering outsourcing its billing operations. A consultant estimates that
outsourcing should result in after-tax cash savings of $9,000 the first year, $15,000 for the next
two years, and $18,000 for the next two years. Assuming a 12% discount rate, calculate the total
present value of the cash flows.
73) Hillsdale is considering two options for comparable computer software. Option A will cost
$25,000 plus annual license renewals of $1,000 for three years, which includes technical support.
Option B will cost $20,000 with technical support being an add-on charge. The estimated cost of
technical support is $4,000 the first year, $3,000 the second year, and $2,000 the third year.
Assume the software is purchased and paid for at the beginning of year one, but that technical
support is paid for at the end of each year. The discount rate is 8%. Ignore income taxes. Determine
which option should be chosen based on present value considerations.
74) DON Corp. is contemplating the purchase of a machine that will produce net after-tax cash
savings of $20,000 per year for 5 years. At the end of five years, the machine can be sold to realize
after-tax cash flows of $5,000. Assuming a 12% discount rate, calculate the total present value of
the cash inflows and the cash savings from the machine.
75) Baird Bros. Construction is considering the purchase of a machine at a cost of $125,000. The
machine is expected to generate cash flows of $20,000 per year for ten years and can be sold at the
end of ten years for $10,000. The discount rate is 10%. Assume the machine would be paid for on
the first day of year one, but that all other cash flows occur at the end of the year. Ignore income tax
considerations. Determine if Baird should purchase the machine.
76) Dobson Contractors is considering buying equipment at a cost of $75,000. The equipment is
expected to generate cash flows of $15,000 per year for eight years and can be sold at the end of
eight years for $5,000. The discount rate is 12%. Assume the equipment would be paid for on the
first day of year one, but that all other cash flows occur at the end of the year. Ignore income tax
considerations. Determine if Dobson should purchase the machine.
77) Incognito Company is contemplating the purchase of a machine that provides it with net
after-tax cash savings of $80,000 per year for 5 years. Assuming an 8% discount rate, calculate the
present value of the cash savings.
78) Samson Inc. is contemplating the purchase of a machine that will provide it with net after-tax
cash savings of $100,000 per year for 8 years. Assuming a 10% discount rate, calculate the present
value of the cash savings.
79) Briefly explain why the value of $100 received today is greater than the value of $100 received
one year from now.
80) Briefly describe the difference between simple interest and compound interest.
81) Two banks each have stated CD rates of 12%. Bank A compounds quarterly and Bank B
compounds semiannually. Explain which bank offers the better CD.
82) Explain the difference between present value and future value.
83) Which three factors are necessary in calculating the present value of a single amount?
84) What is the relationship between the present value of a single amount and the present value of
an annuity?
