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Exam 27: The Concept of Present Value

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Question 1

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(Ignore income taxes in this problem. ) Tweedie Corporation has entered into a 7 year lease for a building it will use as a warehouse.The annual payment under the lease will be $1,662.The first payment will be at the end of the current year and all subsequent payments will be made at year-ends.What is the present value of the lease payments if the discount rate is 13%?

A) $10,296
B) $11,634
C) $7,351
D) $4,945

E) None of the above
F) A) and B)

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Question 2

Multiple Choice

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(Ignore income taxes in this problem. ) Judy Soope just received an annual raise of $500 starting with the current year.If Judy anticipates working for eight more years (including the current year) and the cash flows are discounted at 8%,what cash award today would be equivalent to the pay raise?

A) $4,000
B) $2,874
C) $2,160
D) $2,603

E) C) and D)
F) None of the above

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B

Question 3

Multiple Choice

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If an investment has cash outflows of Q dollars at the end of each year for three years,then the present value of these cash outflows under a 10% rate of return will be:

(Ignore income taxes in this problem. ) In order to receive $12,000 at the end of three years and $10,000 at the end of five years,how much must be invested now if you can earn 14% rate of return?

(Ignore income taxes in this problem. ) Mary wants to have $20,000 available for use in four years.How much should Mary invest now in order to have the $20,000 available in four years if she can invest money at 16%:

An increase in the discount rate will result in an increase in the present value of a given cash flow.

(Ignore income taxes in this problem. ) Virani Corporation has entered into a 8 year lease for a piece of equipment.The annual payment under the lease will be $2,000,with payments being made at the beginning of each year.If the discount rate is 9%,the present value of the lease payments is closest to:

The present value of a given amount decreases as the number of years over which it is to be discounted also decreases.

(Ignore income taxes in this problem. ) How much would you have to invest today in the bank at an interest rate of 7% to have an annuity of $2,800 per year for 9 years,with nothing left in the bank at the end of the 9 years? Select the amount below that is closest to your answer.

A decrease in the discount rate:

(Ignore income taxes in this problem. ) You have deposited $5,188 in a special account that has a guaranteed interest rate.If you withdraw $1,400 at the end of each year for 7 years,you will completely exhaust the balance in the account.The guaranteed interest rate is closest to:

(Ignore income taxes in this problem. ) You have deposited $21,618 in a special account that has a guaranteed interest rate of 18% per year.If you are willing to completely exhaust the account,what is the maximum amount that you could withdraw at the end of each of the next 9 years? Select the amount below that is closest to your answer.