Fundamentals of Financial Accounting, 5/e C-1
Appendix C
Present and Future Value Concepts
ANSWERS TO QUESTIONS
1. The time value of money is the idea that a dollar received today is worth more than
2. Future value—The future value of a number of dollars is the amount that it will
increase to in the future at i interest rate for n periods. The future value is the
4. $8,000 x .38554 = $3,084 (rounded to the nearest dollar).
5. An annuity is a term that refers to equal periodic cash payments or receipts of an
equal amount each period for two or more periods. In contrast to a future value of
6.
Table Values
Concept
i = 5% n =4
i = 14%; n = 10
FV of $1
1.21551
3.70722
PV of $1
0.82270
0.26974
FV of annuity of $1
4.31013
19.33730
PV of annuity of $1
3.54595
5.21612
7. $1,000 x 14.48656 = $14,487. (rounded to the nearest dollar)
Authors’ Recommended Solution Time
(Time in minutes)
Mini-exercises
Exercises
Problems
No.
Time
No.
Time
No.
Time
1
2
1
10
CP1
20
2
2
2
15
CP2
20
3
6
3
15
CP3
20
4
6
4
15
CP4
15
5
6
7
8
9
10
11
12
3
3
3
3
3
3
3
3
5
6
7
5
10
8
PA1
PA2
PA3
PA4
PB1
PB2
PB3
PB4
20
20
20
15
20
20
20
15
ANSWERS TO MINI-EXERCISES
MC–1
$500,000 0.46319
=
$231,595
MC–6
MC-7
MC-7 (continued)
MC-8
Rounds to $398,436.
MC-9
Fundamentals of Financial Accounting, 5/e C-7
MC–10
MC–11
MC–12
ANSWERS TO EXERCISES
EC–1
Req. 1
$6,000 x 2.59374 = $15,562
Req. 2
EC–2
Req. 1
EC–3
Req. 1
$2,000 x 12.00611 = $24,012 (balance at end of year 10)
Req. 2
$24,012 – ($2,000 x 10) = $4,012 (total interest)
Req. 3
EC–4
Req. 1 $3,500 x 4.37462 = $15,311 (balance in the fund)
Req. 2 $15,311 – ($3,500 x 4) = $1,311 (time value of money or interest)
Req. 3
EC–5
Using tables: $25,000 x 4.32948 = $108,237 (purchase price)