APPENDIX C, TIME VALUE OF MONEY (“TVM") (end oftext, pages C-1 to C-13)"A dollar today is worth more than a dollar in the future."Assumptions:1. The dollar is invested today2. The dollar is earning a positive return» 41+ interestFV $1Simple interest: P x R x TCompound interest-Compounding (Future Value “FV")-Discounting (Present Value "PV"). In Accounting we recordlong term assets and long-term liabilities at their present value(cash equivalent amount); therefore, we mostly use PRESENTVALUE concepts.Two types of CASH FLOWSANNUITY–very specific–it is the same dollar amount thatoccurs the same time each period.SINGLE SUM– A single sum can occur at any time at anyamount. It is possible to have multiple single sum cash flows inan investment; an amount that does not occur at the same timeeach period.A cash flow is either an annuity OR a single sum, it cannotbe both.Ordinary Annuity (Payment = $50)$50 $50 $50 $50 $50 $50 $50 $50 $50 $501 2 3 4 5 6 7 8 9 10Single sum (example of 2 single sums, $500 and $1,000)$500$1,00012345678910An investment with two types of cash flows (annuity ($50payment) and a $1,000 single sum)$1,000$50 $50 $50 $50 $50 $50 $50 $50 $50 $501 2 3 4 5 6 7 8 9 10 From page 8-6 of the VLN, what is thedifference between present value andfuture value? Which of the followingstatements is FALSE?O The future value includes interest.O The present value strips interest away(does not include interest)There is no difference between the presentvalue and future value.O A dollar invested today will be worth morein the future than a different dollarinvested at a later date.

Time value of money is a core principle of finance. Due to earning potential, money invested today…

From page 8-6 of the VLN, what is the difference between present value and future value? Which of the following statements is FALSE? O The future value includes interest. O The present value strips interest away (does not include interest) O There is no difference between the present value and future value. O A dollar invested today will be worth more in the future than a different dollar invested at a later date.

From page 8-6 of the VLN, what is the difference between present value and future value? Which of the following statements is FALSE? O The future value includes interest. O The present value strips interest away (does not include interest) O There is no difference between the present value and future value. O A dollar invested today will be worth more in the future than a different dollar invested at a later date.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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