TEST BANK MANAGERIAL ACCOUNTING 4TH EDITION WILD wild MA 4e appb test bank final

Appendix B – Time Value of Money

Appendix B
Time Value of Money

These abbreviated tables can be used with the test questions that are tagged: Factor
Present Value of 1
Periods
3
4
5
6
7
8
9
10

3%
0.9151
0.8885
0.8626
0.8375
0.8131
0.7894
0.7664
0.7441

4%
0.8890
0.8548
0.8219

0.7903
0.7599
0.7307
0.7026
0.6756

5%
0.8638
0.8227
0.7835
0.7462
0.7107
0.6768
0.6446
0.6139

6%
0.8396
0.7921
0.7473
0.7050
0.6651
0.6274
0.5919
0.5584

7%
0.8163
0.7629
0.7130

0.6663
0.6227
0.5820
0.5439
0.5083

8%
0.7938
0.7350
0.6806
0.6302
0.5835
0.5403
0.5002
0.4632

9%
0.7722
0.7084
0.6499
0.5963
0.5470
0.5019
0.4604
0.4224

10%
0.7513
0.6830
0.6209

0.5645
0.5132
0.4665
0.4241
0.3855

12%
0.7118
0.6355
0.5674
0.5066
0.4523
0.4039
0.3606
0.3220

4%
1.1249
1.1699
1.2167
1.2653
1.3159
1.3686
1.4233
1.4802

5%
1.1576
1.2155
1.2763

1.3401
1.4071
1.4775
1.5513
1.6289

6%
1.1910
1.2625
1.3382
1.4185
1.5036
1.5938
1.6895
1.7908

7%
1.2250
1.3108
1.4026
1.5007
1.6058
1.7182
1.8385
1.9672

8%
1.2597
1.3605
1.4693

1.5869
1.7138
1.8509
1.9990
2.1589

9%
1.2950
1.4116
1.5386
1.6771
1.8280
1.9926
2.1719
2.3674

10%
1.3310
1.4641
1.6105
1.7716
1.9487
2.1436
2.3579
2.5937

12%
1.4049
1.5735
1.7623

1.9738
2.2107
2.4760
2.7731
3.1058

6%
2.6730
3.4651
4.2124
4.9173
5.5824
6.2098
6.8017

7%
2.6243
3.3872
4.1002
4.7665
5.3893
5.9713
6.5152

8%
2.5771
3.3121
3.9927
4.6229
5.2064

5.7466
6.2469

9%
2.5313
3.2397
3.8897
4.4859
5.0330
5.5348
5.9952

10%
2.4869
3.1699
3.7908
4.3553
4.8684
5.3349
5.7950

12%
2.4018
3.0373
3.6048
4.1114
4.5638
4.9676
5.3282

Future Value of 1
Periods
3
4
5
6
7
8
9
10

3%
1.0927
1.1255
1.1593
1.1941
1.2299
1.2668
1.3048
1.3439

Present Value of an Annuity of 1
Periods
3
4
5
6
7
8
9

3%
2.8286
3.7171
4.5797
5.4172
6.2303
7.0197
7.7861

4%
2.7751
3.6299
4.4518
5.2421
6.0021
6.7327
7.4353

5%
2.7232
3.5460
4.3295
5.0757
5.7864
6.4632
7.1078

B-1
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution

in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
10

8.5302

8.1109

7.7217

7.3601

7.0236

6.7101

6.4177

6.1446

5.6502

6%
3.1836
4.3746
5.6371
6.9753
8.3938

9.8975
11.491
13.181

7%
3.2149
4.4399
5.7507
7.1533
8.6540
10.260
11.978
13.816

8%
3.2464
4.5061
5.8666
7.3359
8.9228
10.637
12.488
14.487

9%
3.2781
4.5731
5.9847
7.5233
9.2004

11.029
13.021
15.193

10%
3.3100
4.6410
6.1051
7.7156
9.4872
11.436
13.580
15.937

12%
3.3744
4.7793
6.3528
8.1152
10.089
12.300
14.776
17.549

Future Value of an Annuity of 1
Periods
3
4
5
6

7
8
9
10

3%
3.0909
4.1836
5.3091
6.4684
7.6625
8.8923
10.159
11.464

4%
3.1216
4.2465
5.4163
6.6330
7.8983
9.2142
10.583
12.006

5%
3.1525
4.3101
5.5256
6.8019

8.1420
9.5491
11.027
12.578

True / False Questions
[Question]
1.Interest is the borrower’s payment to the owner of an asset for its use.
Answer: TRUE
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1
Topic: Interest

[Question]
2. From the perspective of a depositor, a savings account is a liability with interest.
Answer: FALSE
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting

Difficulty: 3 Hard
Learning Objective: B-C1
Topic: Interest

B-2
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money

[Question]
3. An interest rate is also called a discount rate.
Answer: TRUE
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1
Topic: Interest

[Question]
4. A company can use present and future value computations to estimate the interest component
of holding assets over time.
Answer: TRUE
Blooms Taxonomy: Understand

AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-C1
Topic: Interest

[Question]
5. The number of periods in a present value calculation can only be expressed in years.
Answer: FALSE
Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Present Value

[Question]
6. The present value factor for determining the present value of a single sum to be received three
years from today at 10% interest compounded semiannually is 0.7462.
Answer: TRUE

B-3

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Present Value
Topic: Factor

[Question]

7. The present value of 1 formula is often useful when a borrowed asset must be repaid in full at
a later date and the borrower wants to know its worth at the future date.
Answer: FALSE
Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting

Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Present Value

[Question]

8. In a present value or future value table, the length of one time period may be one year, one
month, or any other length of time depending on the situation.
Answer: TRUE
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-P1
Learning Objective: B-P2
Topic: Present Value
Topic: Future Value

[Question]

9. The present value of $2,000 to be received nine years from today at 8% interest compounded
annually is $1,000 (rounded to full dollar amount).
Answer: TRUE

B-4
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution

in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
Feedback: $2,000 x 0.5002 = $1,000
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Present Value
Topic: Factor

[Question]
10. Sandra has a savings account that is now $50,000. She started with $28,225 and earned
interest at 10% compounded annually. It took five years to accumulate the $50,000.
Answer: FALSE
Feedback: $28,225/$50,000 = 0.5645. This is the present value of 1 factor, 10%, 6 periods.
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard

Learning Objective: B-P1
Topic: PV
Topic: Factor

[Question]
11. Future value can be found if the interest rate (i), the number of periods (n), and the present
value (p) are known.
Answer: TRUE
Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P2
Topic: Future Value

B-5
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]
12. The number of periods in a future value calculation can only be expressed in years.
Answer: FALSE
Blooms Taxonomy: Understand
AACSB: Analytic

AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P2
Topic: Future Value

[Question]

13. The future value of $100 compounded semiannually for three years at 12% equals $140.49.
Answer: FALSE
Feedback: $100 x1.4185 = $141.85
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Future Value
Topic: Factor

[Question]
14. At an annual interest rate of 8% compounded annually, $5,300 will accumulate to a total of
$7,210.65 in five years.
Answer: FALSE

Feedback: $7,210.65/$5,300 = 1.3605. This is the future value of 1 factor for four periods, 8%.
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

B-6
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]

15. An annuity is a series of equal payments occurring at equal intervals.
Answer: TRUE
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting

Difficulty: 1 Easy
Learning Objective: B-P3
Topic: Annuity

[Question]
16. The present value of an annuity table can be used to determine the series of equal payments
that are required by a loan agreement.
Answer: TRUE
Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Present Value

[Question]
17. An ordinary annuity refers to a series of equal payments made or received at the end of equal
intervals.
Answer: TRUE
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting

Difficulty: 1 Easy
Learning Objective: B-P3
Topic: Ordinary Annuity

B-7
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]
18. The present value of $5,000 per year for three years at 12% compounded annually is
$12,009.
Answer: TRUE
Feedback: $5,000 x 2.4018 = $12,009
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

[Question]
19. With deposits of $5,000 at the end of each year, you will have accumulated $38,578 at the

end of the sixth year if the annual rate of interest is 10%.
Answer: TRUE
Feedback: $5,000 x 7.7156 = $38,578
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P4
Topic: Factor
Topic: Future Value
Topic: Annuity

[Question]
20. The future value of an ordinary annuity is the accumulated value of each annuity payment
with interest one period after the date of the final payment.
Answer: FALSE
Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P4
Topic: Ordinary Annuity

B-8
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
Multiple Choice Questions

[Question]
21. Interest is:
A. Time.
B. A borrower's payment to the owner of an asset for its use.
C. The same as a savings account.
D. Always a liability.
E. Always an asset.
Answer: B
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1
Topic: Interest

[Question]
22. Which interest rate column would you use to determine the factor from a present value table

or a future value table for 8% compounded quarterly?
A. 12%
B. 6%
C. 3%
D. 2%
E. 1%
Answer: D
Feedback: 8% /4 = 2%
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Learning Objective: B-P2
Topic: Factor
Topic: Present Value
Topic: Future Value
Topic: Interest

B-9
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]

23. A company is considering investing in a project that is expected to return $350,000 four years
from now. How much is the company willing to pay for this investment if the company requires
a 12% return?
A. $ 55,606
B. $137,681
C. $222,425
D. $265,764
E. $350,000
Answer: C
Feedback: $350,000 x 0.6355 = $222,425
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Topic: Factor
Topic: Present Value

[Question]
24. Sam has a loan that requires a single payment of $4,000 at the end of three years. The loan's
interest rate is 6%, compounded semiannually. How much did Sam borrow?
A. $3,358.40
B. $4,000.00
C. $3,660.40
D. $4,776.40
E. $3,350.00

Answer: E
Feedback: $4,000 x 0.8375 = $3,350.00
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Factor
Topic: Present Value

B-10
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]
25. A company expects to invest $5,000 today at 12% annual interest and plans to receive
$15,529 at the end of the investment period. How many years will elapse before the company
accumulates the $15,529?
A. 0.322 years
B. 3.1058 years
C. 5 years
D. 8 years
E. 10 years
Answer: E

Feedback: $15,529/$5,000 = 3.1058
Future value of 1 at 3.1058 is 12%, 10 periods
Alternatively: $5,000/$15,529 = 0.3220
Present value of 1 at 0.3220 is 12%, 10 periods
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Learning Objective: B-P2
Topic: Factor
Topic: Present Value
Topic: Future Value

[Question]
26. Keisha has $3,500 now and plans on investing it in a fund that will pay her 12% interest
compounded quarterly. How much will Keisha have accumulated after two years?
A. $4,433.80
B. $4,340.00
C. $4,390.40
D. $3,920.00
E. $3,500.00
Answer: A
Feedback: $3,500 x 1.2668 = $4,433.80
Blooms Taxonomy: Apply
AACSB: Analytic

AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry

B-11
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

[Question]
27. How long will it take an investment of $25,000 at 6% compounded annually to accumulate to
a total of $35,462.50?
A) 4 years
B) 5 years
C) 6 years
D) 2 years
E) 10 years
Answer: C
Feedback: $35,462.50/$25,000 = 1.4185, the future value of 1 at 6% for six periods
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications

AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor

[Question]
28. What interest rate is required to accumulate $6,802.50 in four years from an investment of
$5,000?
A. 5%
B. 8%
C. 10%
D. 12%
E. 15%
Answer: B
Feedback: $6802.50/$5,000 = 1.3605, the future value of 1 factor at 8% for four periods
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting

B-12
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Appendix B – Time Value of Money
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

[Question]
29.Crowe Company has acquired a building with a loan that requires payments of $20,000 every
six months for five years. The annual interest rate on the loan is 12%. What is the present value
of the building?
A. $72,096
B. $113,004
C. $147,202
D. $86,590
E. $200,000
Answer: C
Feedback: $20,000 x 7.3601 = $147,202
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

[Question]
30. Jon Shear expects an investment of $25,000 to return $6,595 annually. His investment is
earning 10% per year. How many annual payments will he receive?
A. Five payments
B. Six payments
C. Four payments
D. Three payments
E. More than six payments
Answer: A
Feedback:
$25,000/$6,595 = 3.7908, the present value of an annuity of 1 factor at 10% for five periods
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking

B-13
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Present Value

Topic: Annuity

[Question]
31. A company is considering an investment that will return $20,000 at the end of each
semiannual period for four years. If the company requires an annual return of 10%, what is the
maximum amount it is willing to pay for this investment?
A. Not more than $63,398
B. Not more than $126,796
C. Not more than $80,000
D. Not more than $129,264
E. Not more than $160,000
Answer: D
Feedback: $20,000 x 6.4632 = $129,264
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Annuity
Topic: Present Value

[Question]
32.What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual
rate of interest?
A. $24,838.00

B. $21,668.80
C. $31,049.00
D. $40,000.00
E. $44,800,00
Answer: B
Feedback: $4,000 x 5.4172 = $21,668.80
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications

B-14
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Annuity
Topic: Present Value

[Question]
33. An individual is planning to set-up an education fund for her children. She plans to invest
$10,000 annually at the end of each year. She expects to withdraw money from the fund at the
end of 10 years and expects to earn an annual return of 8%. What will be the total value of the

fund at the end of 10 years?
A. $ 46,320
B. $ 67,107
C. $100,000
D. $144,870
E. $215,890
Answer: D
Feedback: $10,000 x 14.487 = $144,870
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P4
Topic: Factor
Topic: Annuity
Topic: Future Value

[Question]
34.Chad is setting up a retirement fund, and he plans on depositing $5,000 per year in an
investment that will pay 7% annual interest. How long will it take him to reach his retirement
goal of $69,080?
A. 13.816 years
B. 0.072 years
C. 10 years
D. 20 years
E. 5 years

Answer: C
Feedback: $69,080/$5,000 = 13.816. This is the factor for the future value of an annuity of 1,
B-15
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
7%, 10 periods
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P4
Topic: Factor
Topic: Future Value
Topic: Annuity

Short Essay

[Question]
35.What is interest?
Answer:
Interest represents a borrower's payment to the owner of an asset in exchange for its use.
Blooms Taxonomy: Remember
AACSB: Analytic

AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-C1
Topic: Interest

[Question]
36. Explain the concept of the present value of a single amount.
Answer:
The present value of a single amount to be received at a future date is equal to the amount that
can be invested now at the specified interest rate to yield the future value.
Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P1
Topic: Present Value

B-16
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Appendix B – Time Value of Money

[Question]
37. Explain the concept of the future value of a single amount.
Answer:
The future value of a single amount is equal to the amount that would accumulate at a future date
at a specified rate of interest.
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-P2
Topic: Future Value

[Question]
38. Explain the concept of the present value of an annuity.
Answer:
The present value of an annuity is the amount that can be invested now at the specified interest
rate to yield a series of equal periodic payments.
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting

Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Present Value
Topic: Annuity

[Question]
39. Explain the concept of the future value of an annuity.
Answer:
The future value of an annuity to be invested at a specified rate of interest is the amount that
would accumulate at the date of the final periodic payment.
B-17
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: B-P4
Topic: Future Value
Topic: Annuity

Short Answer Questions

[Question]
40. A company needs to have $200,000 in four years, and will create a fund to ensure that the
$200,000 will be available. If they can earn a 7% return, how much must the company invest in
the fund today to equal the $200,000 at the end of four years?
Answer: $200,000 x 0.7629 = $152,580
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Topic: Present Value
Topic: Factor

[Question]
41. Annette has a loan that requires a $25,000 payment at the end of three years. The interest rate
on the loan is 5%, compounded annually. How much did Annette borrow today?
Answer: $25,000 x 0.8638 = $21,595
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1

Topic: Present Value
Topic: Factor

B-18
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money

[Question]
42. Thompson Company has acquired a machine from a dealer which requires a payment of
$45,000 at the end of five years. This transaction includes interest at 8%, compounded
semiannually. What is the value of the machine today?
Answer: $45,000 x 0.6756 = $30,402
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Topic: Present Value
Topic: Factor

[Question]
43. A company is creating a fund by depositing $65,763 today. The fund will grow to $90,000
after eight years. What annual interest rate is the company earning on the fund?

Answer: $65,763/$90,000 = 0.7307
This is the present value of 1 factor for eight periods at 4%.
Alternatively: $90,000/$65,763 = 1.3686
This is the future value of 1 factor for 8 periods at 4%.
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Learning Objective: B-P2
Topic: Factor
Topic: Present Value
Topic: Future Value

B-19
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money

[Question]
44. A company is setting aside $21,354 today and wishes to have $30,000 at the end of three
years for a down payment on a piece of property. What interest rate must the company earn?
Answer: $21,354/$30,000 = 0.7118
This is the present value of 1 factor for three periods at 12%. This implies the company must

earn 12%.
Alternatively: $30,000/$21,354 = 1.4049 This is the future value of 1 factor for three periods at
12%.
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P1
Learning Objective: B-P2
Topic: Factor
Topic: Present Value
Topic: Future Value

B-20
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]
45. A company has $50,000 today to invest in a fund that will earn 7%. How much will the fund
contain at the end of eight years?
Answer: $50,000 x 1.7182 = $85,910
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications

AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

[Question]
46.Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of five years.
He can invest his $105,000 at 10% interest compounded semiannually. Will Troy have enough to
pay his loan at the end of the five years?
Answer: $105,000 x 1.6289 = $171,034.50
No, Troy will be $3,965.50 short of his goal of $175,000.
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2
Topic: Factor
Topic: Future Value

B-21
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Appendix B – Time Value of Money

[Question]
47. Madera Iron Sculpting is planning to save the money needed to replace one of its robotic
welders in five years by making a one-time deposit of $20,000 today and four yearly
contributions of $5,000 beginning at the end of year 1. The deposits will earn 10% interest. How
much money will Sierra have accumulated at the end of five years to replace the welder?
Answer:
Future value of $20,000 deposit
Future value of $5,000 payments
Total accumulated

$20,000 x 1.6105 =
$5,000 x 4.6410 =

$32,210
23,205
$55,415

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P2

Learning Objective: B-P4
Topic: Factor
Topic: Future Value
Topic: Annuity

[Question]
48. A company borrows money from the bank by promising to make six annual year-end
payments of $25,000 each. How much is the company able to borrow if the interest rate is 9%?
Answer: $25,000 x 4.4859 = $112,147.50
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

B-22
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]
49. A company borrows money from the bank by promising to make eight semiannual payments

of $9,000 each. How much is the company able to borrow if the interest rate is 10% compounded
semiannually?
Answer: $9,000 x 6.4632 = $58,168.80
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

[Question]
50. When you reach retirement age, you will have one fund of $100,000 from which you are
going to make annual withdrawals of $14,702. The fund will earn 6% per year. For how many
years will you be able to draw an even amount of $14,702?
Answer: Nine years.
Feedback: $100,000/$14,702 = 6.8017, the present value of 1 annuity factor at 6% for nine
periods.
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting

Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

B-23
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]
51. Big League Sports borrowed $883,212 and must make annual year-end payments of
$120,000 each. If the applicable interest rate is 6%, how many years will it take Big League
Sports to pay off the loan?
Answer: $883,212/$120,000 = 7.3601
This is the present value of an annuity factor at 6% for 10 periods. It will take 10 years to pay off
the loan.
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Present Value

Topic: Annuity

[Question]
52. Daley Co. lends $524,210 to Davis Corporation. The terms of the loan require that Davis
repay the loan with six semiannual period-end payments of $100,000 each. What semiannual
interest rate is Davis paying on the loan?
Answer: $524,210/$100,000 = 5.2421
This is the present value of an annuity factor for 6 periods at 4%.
Davis is paying a 4% semiannual rate, or 8% annual rate of interest.
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P3
Topic: Factor
Topic: Present Value
Topic: Annuity

B-24
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.


Appendix B – Time Value of Money
[Question]
53. A company is beginning a savings plan. It will save $15,000 per year for the next 10 years.

How much will the company have accumulated after the tenth year-end deposit, assuming the
fund earns 10% interest?
Answer: $15,000 x 15.937 = $239,055
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: B-P4
Topic: Factor
Topic: Future Value
Topic: Annuity

[Question]
54. You hope to retire in 10 years. Regrettably you are only just now beginning to save money
for this purpose. You expect to save $6,000 a year at an annual rate of 8%. How much will you
have accumulated when you retire?
Answer:
$6,000 x 14.487 = $86,922
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard

Learning Objective: B-P4
Topic: Factor
Topic: Future Value
Topic: Annuity

[Question]
55. A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in seven
years. The fund will earn 7% interest, and the company intends to put away a series of equal
year-end amounts for seven years. What amount must the company deposit annually?
Answer: $8,654,000/8.654 = $1,000,000 annually
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communications

B-25
© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution
in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.