CONNECT ONLINE ACCESS F/MANAGERIAL ACC.
6th Edition
ISBN: 9781264445356
Author: Noreen
Publisher: MCG
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Chapter 7A, Problem 7A.3E
To determine
Concept Introduction:
The time value of money is a concept that is applied to evaluate the projects having future cash flows. This concept is mostly used in the capital budgeting analysis to evaluate the worth of the projects or investment opportunities.
lump sum amount to be invested today.
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Students have asked these similar questions
Basic Present Value Concepts
In three years, when he is discharged from the Air Force, Steve wants to buy an $8,000 power boat.
Required:
What lump-sum amount must Steve invest now to have the $8,000 at the end of three years if he can invest money at:
1. Ten percent?
2. Fourteen percent?
Assume your goal in life is to retire with one million dollars. How much would you need to save at the end of each year if interest rates average 4% and you have a 25-year work life?
Question 7Answer
a.
$40,000
b.
$24,012
c.
$200,204
d.
$752,952
Exercise 14A-3 (Algo) Basic Present Value Concepts [LO14-7]
In seven years, when he is discharged from the Air Force, Steve wants to buy a $27,000 power boat.
Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
What lump-sum amount must Steve invest now to have $27,000 at the end of seven years if he can invest money at:
Note: Round your final answer to the nearest whole dollar amount.
1. Five percent
2. Ten percent
Present Value
Chapter 7A Solutions
CONNECT ONLINE ACCESS F/MANAGERIAL ACC.
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- Funding a retirement goal. Austin Miller wishes to have 800,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today. a. If upon retirement in 20 years, Austin plans to invest 800,000 in a fund that earns 4 percent, what is the maximum annual withdrawal he can make over the following 15 years? b. How much would Austin need to have on deposit at retirement in order to withdraw 35,000 annually over the 15 years if the retirement fund earns 4 percent? c. To achieve his annual withdrawal goal of 35,000 calculated in part b, how much more than the amount calculated in part a must Austin deposit today in an investment earning 4 percent annual interest?arrow_forwardExercise 14A-3 (Algo) Basic Present Value Concepts [LO14-7] In six years, when he is discharged from the Air Force, Steve wants to buy a $14,000 power boat. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: What lump-sum amount must Steve invest now to have the $14,000 at the end of six years if he can invest money at: (Round your final answer to the nearest whole dollar amount.)arrow_forwardQUESTION ONEYou estimate that you will need about K80,000 to send your child to college in eight years. Youhave about K35,000 now. If you can earn 20 percent per year, will you make it? At what rate willyou just reach your goal? (Would you be willing to pay K1,163 today in exchange for K10,000 in 30 years? What would bethe key considerations in answering yes or no? Would your answer depend on who is making thepromise to repay? You have just made your first K2,000 contribution to your individual retirement account.Assuming you earn a 12 percent rate of return and make no additional contributions, what willyour account be worth when you retire in 45 years? What if you wait 10 years before contributing?(Does this suggest an investment strategy?) If you were an athlete negotiating a contract, would you want a big signing bonus payableimmediately and smaller payments in the future, or vice-versa? How about looking at it from theteam’s perspective?arrow_forward
- Assume your goal in life is to retire with one million dollars. How much would you need to save at the end of each year if interest rates average 4% and you have a 25-year work life? a. $752,952 b. $200,204 c. $40,000 d. $24,012arrow_forwardQUESTION 9 Bob buys a property that costs $1,000,000. The property is projected to generate NOI as follows: Year NOI $100,000 1 2 $105,000 3 $110,000 Bob will own the property for two years. Bob will sell the property at the end of year 2 at a cap rate that is 250 basis points lower than the cap rate at which he bought the property. What is Bob's annualized IRR for the investment in question A. 26.21% B. 30.47% C. 27.78% D. 14.89%arrow_forwardConsider these two alternatives. Alternative 2 $6,400 $2,000 $520 $1,300 8 years 12 years a. Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 18% per year. b. Determine the life of Alternative 1 for which the AWs are equal. Click the icon to view the interest and annuity table for discrete compounding when the MARR is 18% per year. More Info N 1 2 3 4 5 a. The capital investment of Alternative 2 would have to be $ or less for the initial decision to be reversed. (Round to the nearest dollar.) 6 7 8 9 10 11 12 13 14 15 Tactor To Find F Given P FIP 1.1800 1.3924 1.6430 1.9388 2.2878 2.6996 3.1855 3.7589 4.4355 5.2338 6.1759 7.2876 8.5994 10.1472 11.9737 Vorurt actor To Find P Given F PIF 0.8475 0.7182 0.6086 0.5158 0.4371 0.3704 0.3139 0.2660 0.2255 0.1911 0.1619 0.1372 0.1163 Capital…arrow_forward
- :25 You have researched your dream around-the-world vacation and determined that the total cost of the vacation will be $24,000. You feel you can earn an APR of 9.9 percent compounded monthly and plan to save $260 per month until you reach your goal. How many years will it be until you reach your goal and enjoy your well-deserved vacation? Multiple Choice 6.56 years 7.69 years 5.30 years 6.00 years 5.74 yearsarrow_forward30 You hope to buy your dream house six years from now. Today your dream house costs $189,900. You expect housing prices to rise by an average of 4.5% per year over the next six years. How much dream house cost by the time you are ready to buy it? will your A $240,284.08 B. $247,299.20 C $246,396.67 D $246,019.67 Ο Α O ос OD Barrow_forwardWhat is the present value of receiving $1,950 a year for 30 years if you expect a rate of return of 6% a year? Group of answer choices $975 $242 $340 $124 it has to be one of the above answers.arrow_forward
- Finance Approximately how much would you need to invest today, to receive $280 in ten years, if you received an annual interest rate of ten percent? a. $119 b. $97 c. $130 d. $108arrow_forward28 d. You just received an inheritance worth $150,000. You want to retire in 25 years and you plan to contribute an 29 additional $15,000 at the end of each year. If you need $1,500,000 in order to retire, what interest rate must you earn 30 in order to reach your goal? 31 32 33 34 35 37 38 39 40 41 42 43 45 46 Ready 1 Time Value of Money Accessibility: Investigate 61°F Mostly cloudy G Capital Budgeting | Unequal Lives | Optimal Capital Structure Q Search ● 00 0000 000 ●● 0000 0 0 9. 0 U O 0 C ( 3 17 20 ∞ 000 00 0000 hp 0 0000 18arrow_forwardsuppose you are planning to buy a home in 8 years from now that costs you 48854 OMR, How much should you save each year in your bank account that pays 6.012 percent to reach your goal? Select one: a. 3786.63 b. None of the options c. 483737.65 d. 4481.32 e. 4933.90arrow_forward
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