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ACCTMIS 2200 Lecture 15: Time Value of Money 2 and Debt Financing

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fuchsiaelk478
19 Apr 2017
School
Ohio State University
Department
Accounting and Management Info
Course
ACCTMIS 2200
Professor
Marc Smith

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ACCTMIS 2200 Full Course Notes
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ACCTMIS 2200 Full Course Notes
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Document Summary

Working backwards from future value of lump sum case. Present value = future value * present value. Known as discounting (figuring out the present value) b) c) Series of equal payments with each payment having same time interval. Annuity due: payments occurring at beginning of year. Know value of series of equal cash flows occurring at end of each period at some point in the future. Future value of annuity = payment * future. Key points: payment is amount of each individual equal payment. Future value and present value are not reciprocal of each other b) c) Know value of a series of equal cash flows occurring at the beginning of each period at some point in the future. Exam 3 material page 1 b) some point in the future. Future value of annuity due = payment * future. Present value of annuity = payment * present.

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Related Questions

Jack Sawyer is presently leasing a copier from John OfficeEquipment Company. The lease requires 11 annual payments of $3,500at the end of each year and provides the leaser (John) with an 8%return on its investment. You may use the following 8% interestfactors.

9 Periods

10 Periods

11 Periods

Future Value of 1,

1.99900,

2.15892,

2.33164

Present Value of 1,

.50025,

.46319,

.42888

Future Value of,

12.48756,

14.48656

16.64549

Ordinary Annuity of 1

Present Value of

6.24689

6.71008

7.13896

Ordinary Annuity of 1

Present Value of

6.74664

7.24689

7.71008

Annuity Due of 1


Instructions
(a) Assuming the computer has an 11-year life and will have nosalvage value at the expiration of the lease, what was the originalcost of the copier to John?
(b) What amount would each payment be if the 11 annual payments areto be made at the beginning of each period

John Long has just learned he has won a $505,400 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If John takes all the money today, the state and federal governments will deduct taxes at a rate of 48% immediately. (2) Alternatively, the lottery offers John a payout of 20 equal payments of $40,500 with the first payment occurring when John turns in the winning ticket. John will be taxed on each of these payments at a rate of 26%.

Compute the present value of the cash flows for lump sum payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Lump sum payout -

Assuming John can earn an 11% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Present value of annuity payout-

Time Value Analysis - Pensacola Surgery Center Case 12

Cases in Healthcare Finance - Louis C. Gapenski

3. Now consider the surgery centers' goal of having $200,00available in five years to buy new patient billing system.

a. What lump sum amount must be invested today in a CD paying 10percent annual interest to accumulate the needed $200,000?

b. What annual interest rate is needed to produce $200,000 after5 years if only $100,00 is invested?

4. Now consider a second alternative for accumulating funds tobuy the new billing system. In lieu of a lump sum investment,assume that five annual payments of $32,000 are made at the end ofeach year.

a. Waht type of annuity is this?

b. What is the present value of this annuity if the opportunitycost rate is 10 percent annually? 10 percent compoundedsemiannually?

c. What is the future value of this annuity if the payments areinvested in an account that pays 10 percent interest annually? 10percent compounded semiannually?

f. Suppose the payments are only $16,000 each, but they are madeevery six months, starting six months from now. What will thefuture value be if the ten payments were invested at 10 percentannual interest? If invested at BankSouth at 10 percent compoundedsemiannually?