Apply the concepts from page 8-6 of the VLN, which cash flow is an annuity? A) $60 $70 $60 $50 $60 $50 $70 $70 $60 $50 B) $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 C) $60 $60 $60 $60 $60 D) $60 O A, B, and C O B and C O A only O D only B only
Apply the concepts from page 8-6 of the VLN, which cash flow is an annuity? A) $60 $70 $60 $50 $60 $50 $70 $70 $60 $50 B) $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 C) $60 $60 $60 $60 $60 D) $60 O A, B, and C O B and C O A only O D only B only
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
ChapterM: Time Value Of Money Module
Section: Chapter Questions
Problem 1MC
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Transcribed Image Text:Apply the concepts from page 8-6 of the VLN, which cash flow is an annuity?
A)
$60
$70
$60
$50
$60
$50
$70
$70
$60
$50
B)
$60
$60
$60
$60
$60
$60
$60
$60
$60
$60
C)
$60
$60
$60
$60
$60
D)
$60
O A, B, and C
O B and C
O A only
O D only
O B only
Transcribed Image Text:APPENDIX C, TIME VALUE OF MONEY (“TVM") (end of
text, pages C-1 to C-13)
"A dollar today is worth more than a dollar in the future."
Assumptions:
1. The dollar is invested today
2. The dollar is earning a positive return
» 41+ interest
FV $1
Simple interest: P x R x T
Compound interest
-Compounding (Future Value “FV")
-Discounting (Present Value "PV"). In Accounting we record
long term assets and long-term liabilities at their present value
(cash equivalent amount); therefore, we mostly use PRESENT
VALUE concepts.
Two types of CASH FLOWS
ANNUITY–very specific–it is the same dollar amount that
occurs the same time each period.
SINGLE SUM– A single sum can occur at any time at any
amount. It is possible to have multiple single sum cash flows in
an investment; an amount that does not occur at the same time
each period.
A cash flow is either an annuity OR a single sum, it cannot
be both.
Ordinary Annuity (Payment = $50)
$50 $50 $50 $50 $50 $50 $50 $50 $50 $50
1 2 3 4 5 6 7 8 9 10
Single sum (example of 2 single sums, $500 and $1,000)
$500
$1,000
1234
56789
10
An investment with two types of cash flows (annuity ($50
payment) and a $1,000 single sum)
$1,000
$50 $50 $50 $50 $50 $50 $50 $50 $50 $50
1 2 3 4 5 6 7 8 9 10
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