Weygandt 8th Canadian Edition Test Questions & Answers - Accounting Principles Vol 2 8e Canadian Complete Test Bank by Jerry J. Weygandt. DOCX document preview.
APpendix PV: PRESENT VALUE CONCEPTS
Exercises
Exercise 1
RGI Services has just renovated their local warehouse. In order to do so they borrowed $ 20,000 at 5%, which is required to be repaid in two years.
Instructions
a) How much simple interest will RGI have to pay? Show your calculations.
b) If the loan document indicated compound interest, what would the total interest be?
Exercise 2
Suri has the following investments in her portfolio:
Interest | Interest | |||
Investment | Rate | Year(s) | Type | |
A | $ 600 | 4% | 2 | Simple |
B | $ 5,500 | 5% | 2 | Compound |
C | $ 900 | 6% | 1 | Simple |
Instructions
Calculate the total amount of interest Suri will receive on her portfolio.
A | $ 600 x.04 x 2 = $ 48.00 |
B | Yr 1 = $ 5,500 x.05 = 275.00 |
Yr 2 = $ 5,775 x.05 = 288.75 | |
C | $ 900 x.06 = 54.00 |
Total = $ 665.75 |
Exercise 3
Ashwin has just invested $ 10,000 in a compound interest three-year certificate with a rate of 6%.
Instructions
Calculate the total amount of interest in total Ashwin will receive.
A | C | A x C | |
Amount | Rate | Interest | |
Yr 1 | $ 10,000 | 0.06 | $ 600.00 |
Yr 2 | $ 10,600 | 0.06 | 636.00 |
Yr 3 | $ 11,236 | 0.06 | 674.16 |
Total Interest | $ 1,910.16 | ||
Exercise 4
You have received the following investment schedule:
Interest | Total | Interest | |||
Investment | Rate | Year(s) | Interest* | Type | |
A | $ 1,500 | 6.5% | 2 | $ 200 | C |
B | $ 8,500 | 7.0% | 2 | $ 1,190 | S |
C | $ 2,500 | 5.0% | 2 | $ 250 | S |
*rounded to the nearest dollar | |||||
Instructions
For each investment, indicate with a C if the interest is compound or S if it is simple.
Interest | Total | Interest | |||
Investment | Rate | Year(s) | Interest* | Type | |
A | $ 1,500 | 6.5% | 2 | $ 201 | C |
B | $ 8,500 | 7.0% | 2 | $ 1,190 | S |
C | $ 2,500 | 5.0% | 2 | $ 250 | S |
*rounded to the nearest dollar | |||||
Exercise 5
Ali is in planning to go to university in 5 years. After doing some research, he estimated tuition will run about $ 15,000 for the first year. Interest rates are currently at 5% and not expected to change over the next 5 years.
Instructions
How much money must Ali’s Mom invest today to pay cover the tuition for his first year?
Exercise 6
An investment opportunity advertises as follows: invest $ 33,842 and receive $ 50,000. In the fine print, the advertisement indicates an interest rate of 5%.
Instructions
Determine how many years the investor must wait to receive $ 50,000.
Exercise 7
Simon has $ 8,714.40 in his savings account. Without adding any additional funds to this account Simon would like to have $ 10,000 in it at the end of 4 years. What interest rate would Simon need in order to achieve his goal?
Exercise 8
Fung-Yee dreams of owning her own home 10 years from now. At that time, she would like to have $ 30,000 saved up for a down payment. Interest rates are expected to remain at 4%.
Instructions
Calculate how much Fung-Yee would have to invest today to realize her dream. Round your answer to the nearest dollar.
Exercise 9
Stillwater Limited’s managing partner has just purchased an investment that pays an annual amount of $ 5,000 at the end of each year for the next 10 years. This investment has a guaranteed return of 4%.
Instructions
Calculate how much Stillwater likely paid for this investment.
Exercise 10
Suki Services has just leased a new printer that the chief accountant has determined is a capital lease. The terms are as follows:
Term – 5 years
Payments – $ 7,000 due at the end of each contract year
Discount Rate – 4%
Instructions
What is the present value of the rental payments rounded to the nearest dollar?
Exercise 11
A new lease contract has just been signed for a digital engraving machine. It has been determined that this lease is a capital lease containing the following terms:
Term – 5 years
Payments – $ 5,000 due at the end of each contract year
Discount Rate – 6%
Instructions
Calculate the amount used to capitalize the engraving machine. Round your answer to the nearest dollar.
Exercise 12
Rainbow Bridge Pet Care Centre is looking at issuing $ 200,000 of 5-year bonds in order to finance their small animal wing. The bonds have an interest rate of 5% with semi-annual interest payments. The day they go to issue the bonds, the market rate is at 4%.
Instructions
Determine how much Rainbow Bridge will bring in from the sale of these bonds.
PV Principal 2% 10 periods | $ 200,000 | 0.82035 | $ 164,070 | |
Interest pmts | $ 200,000 | 0.025 | $ 5,000 | |
PV of interest pmts | 10 periods | 2% | 8.98259 | |
PV of interest pmts | 44,913 | |||
Total Proceeds of Bond Sale | $ 208,983 | |||
Exercise 13
Wyatt Industries is about to issue $ 150,000 bonds with a 10-year term. The interest on these bonds is 3% with annual interest payments. The market rate is currently at 4%.
Instructions
Calculate how much Wyatt will receive from the sale of these bonds.
Exercise 14
Key West Surfboards is issuing $ 260,000 worth of their bonds today. The bonds have a 5-year term and
an interest rate of 4% equal to that of the market.
Instructions
Calculate the sales price of these bonds.
Exercise 15
The market interest rate is 5%. Your company has just announced the following:
Series A Bonds
$ 500,000
6% semi-annual interest
5-year bonds
Instructions
How much can they expect to collect from the series A bond sales?
Exercise 16
Strategic Services gives RGI Consulting a $ 225,000 five-year note indicating an interest rate of 6% to cover the consulting services they arranged. As part of this agreement, Strategic Services will make annual blended payments at the end of the year.
Instructions
Calculate the annual payment amount that RGI Consulting can expect to receive.
Exercise 17
Joe is interested in Marissa’s 1974 yellow Corvette. He offers to purchase it from her for $ 25,000. This would include $ 5,000 up front and then moving forward, equal blended payments over the next 6 years at 7%. The payments would be made at the end of each year.
Instructions
How much will the payment be from Joe at the end of each year?
Exercise 18
You recently purchased a new sectional sofa from Steve’s Fine Furniture. The price of the deal was $ 4,500 with the option of an extra $ 500 off the list price or no payment for two years. What is the effective interest rate of this deal?
Exercise 19
You are looking at purchasing a new car. The contract on the offer includes an interest rate of 5% and purchase price of $ 30,000. You can see that the annual blended payments are $ 5,184.60 but you are unable to read the term as there’s a mark on the contract.
Instructions
Determine how many years will it take you to pay off this car loan.
Exercise 20
Ting Towables has a programmable plastic moulding machine. This machine is expected to last another 4 years. The most recent estimates for its future cash flows have been calculated at:
Estimated | |
Year | Cash Flows |
1 | $ 5,000 |
2 | $ 5,500 |
3 | $ 4,000 |
4 | $ 3,500 |
Instructions
Calculate the moulding machine’s value in use using a discount rate of 4%.
Estimated | PV | PV | |
Year | Cash Flows | Factor | Amount |
1 | $ 5,000 | 0.96154 | $ 4,807.70 |
2 | $ 5,500 | 0.92456 | 5,085.08 |
3 | $ 4,000 | 0.88900 | 3,556.00 |
4 | $ 3,500 | 0.85480 | 2,991.80 |
Value in Use | $ 16,440.58 |
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Accounting Principles Vol 2 8e Canadian Complete Test Bank
By Jerry J. Weygandt