DOC PREVIEW
UA ACCT 200 - Appendix C: Time Value of Money
Type Lecture Note
Pages 2

## This preview shows page 1 out of 2 pages.

View full document
Do you want full access? Go Premium and unlock all 2 pages.
Do you want full access? Go Premium and unlock all 2 pages.

Unformatted text preview:

ACCT 200 1st Edition Lecture 17 Outline of Last Lecture I. MiscellaneousII. BE 8-1III. Unearned RevenuesIV. Contingent LiabilitiesV. WarrantiesVI. BE 8-9VII. Contingent GainsVIII. E 8-16Outline of Current Lecture I. BE C-2II. BE C-5III. BE C-8IV. BE C-11V. BE C-12VI. MiscellaneousVII. ExampleCurrent LectureBE C-25 years, 10,000 current amount of cash (present value)Needs either 14,000 (for car) or 18,000 (for car w/turbo) in 5 years10% interest he can earn10,000(single sum)*(FV of 1 table, 5 yrs, 10%)=10,000*1.61051=\$16,105.1Can buy car but not turboBE C-55000 bonus if she stays 5 years at company, 7% interest rateWhat is the value now of the \$5000 she will get in the future?5000*.71299=3564.95(in real life, don’t know interest rate will stay constant)BE C-8Need to save 20,000 for a cruise3000 per year for next 6 years9% compound interest3000*(FV of annuity, 6 yrs at 9%) (table 3)3000*7.5233=\$22,569.90Yes, can go on cruise!BE C-11Awarded 4-year scholarship8000/yr at end of yearAssume 6% interest rate; what is value of scholarship today?8000*PVA of 4 yrs, 6%=(8000*3.46511)=\$27720.88BE C-12Company wants to purchase a 35,000 piece of equipmentExpects to get additional revenues of 5000/yr for 10 yearsAssuming 10% interest rate, does this make sense to buy?5000* PVA factor of 10 yrs at 10% interest=5000*6.14457=\$30,722.85Costs \$35,000 now so shouldn’t buy!Watch wording: annuity/lump sum, future or presentBond: bond issuer borrows money and regularly pays the interestSold in \$1000 incrementsBonds spread the risk Will study next chapterExample: Issue (borrow) \$1 mil bond, 10 yrs, pay interest semi-annually (twice a year; ½ per 6 months); 6% annual interest rateGet cash now; pay back single sum of \$1 mil in 10 yearsAlso have to pay interest 2 times/yr every year for 10 years (annuity)Bond value is based on the present value of the principal PLUS the present value of the interest payments20 interest payments (10 yr * 2 per year)6% annual rate, so each payment is based on 3% (1/2 of full rate)\$1 mil * PV1, 20 periods, 3%1,000,000*.03=interest payment=30,000 semiannually30,000*PVA 20 periods,

View Full Document

# UA ACCT 200 - Appendix C: Time Value of Money

Type: Lecture Note
Pages: 2
Documents in this Course

3 pages

16 pages

20 pages

13 pages

9 pages

10 pages

8 pages

2 pages

15 pages

16 pages

8 pages

5 pages

9 pages

14 pages