Managerial Accounting
Managerial Accounting
6th Edition
ISBN: 9781259726972
Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter B, Problem 18E
To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 1:

We have to determine the amount to be deposited today.

Expert Solution
Check Mark

Answer to Problem 18E

The amount to be deposited today will be $42480.

Explanation of Solution

Present value= FutureValue&*#x00A0;PVf(n,r)Future value= 60,000i= 9%n= 4 .Present value = 60,000&*#x00A0;PV(4,9%)P= 42480

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 2:

We have to determine the amount to be deposited today.

Expert Solution
Check Mark

Answer to Problem 18E

The amount to be deposited today will be $12855

Explanation of Solution

Present value= FutureValue&*#x00A0;PVf(n,r)Future value= 15,000i= 8%n= 2 .Present value = 15,000&*#x00A0;PV(2,8%)P= 12855

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 3:

We have to determine the best option among the two.

Expert Solution
Check Mark

Answer to Problem 18E

We will have $463 now as the future value of $463 after 10 years will be $1096.1062 which is greater than $1000.

Explanation of Solution

Future value= PV&*#x00A0;FVf(n,r)A= 463i= 9%n= 10 .Future value= 463&*#x00A0;Fvf(10,9%)P= 463*2.3674    =1096.1062

We will have $463 now as the future value of $463 after 10 years will be $1096.1062 which is greater than $1000.

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 4:

We have to determine the cost of sticker in eight years.

Expert Solution
Check Mark

Answer to Problem 18E

The cost of sticker in eight years will be $132.975

Explanation of Solution

Future value= PV&*#x00A0;FVf(n,r)A= 90i= 5%n= 8.Future value= 90&*#x00A0;Fvf(8,5%)P= 90*1.4775    =132.975

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 5:

We have to determine the cost of new home after eight years.

Expert Solution
Check Mark

Answer to Problem 18E

The cost of new home after eight years will be $339,760.60

Explanation of Solution

Future value= PV&*#x00A0;FVf(n,r)A= 158,500i= 10%n= 8.Future value= 158,500&*#x00A0;Fvf(8,10%)P= 158,500*2.1436    =339,760.60

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 6:

We have to determine the amount of today’s investment.

Expert Solution
Check Mark

Answer to Problem 18E

The amount of today’s investment will be $10852.32

Explanation of Solution

PV of single annuity = AMT&*#x00A0;PVf(10,6%)                              =10,000*0.558PV of single annuity = $5580Interest annuity = AMT&*#x00A0;PVoa (10,6%)                       = 400*13.1808                       =$5272.32Total  Present Value = $10852.32

To determine

Concept introduction:

Present Value:

Present value of money means the present or current value of a future cash flow at a given rate of interest or return.

Future Value:

The future value is the value of present cash flow at specified time period and at specified rate of return.

Requirement 7:

We have to determine the present value of given situation.

Expert Solution
Check Mark

Answer to Problem 18E

The present value of amount will be $5,734,500

Explanation of Solution

Amount= annual payment*PVoa(20,6%)A= 500,000i= 6%n= 20Amount= 500,000*11.469    =$5,734,500

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