Time Value of Money
ACFI 340 – TAKE HOME QUIZ - FALL, 2011
Below you will find a series of independent questions involving present value concepts. Show all factors used in present value computations and indicate the table that was used (FV of $1, PV of $1, etc). If you use a financial calculator, show the key strokes you used to compute the answer: N, i/y, PV, FV and PMT
Please download a copy of this quiz and type your answers after each question. Each student should design his/her own spreadsheets. Where amortization schedules are required, they should be labeled as exhibits and attached at the end of your quiz. On mortgage amortization schedules, attach only the first and last page of the schedule.
No “canned program” spreadsheets should be used. While you may discuss the quiz with one another, you are expected to prepare your own solutions independently of other students. Obviously identical spreadsheets will result in a penalty of 30 points on your total score.
a. Sacks Corporation bought a new machine and agreed to pay for it in 5 equal installments of $40,000 at the end of each of the next 5 years. Assuming that the prevailing rate of 6% applies to this contract, how much should Sacks record as the cost of the machine?
b. Design amortization schedules showing the payments under the assumption:
1. Interest is included in the face amount of the note.
2. The note is an interest bearing note.
c. Prepare the entry to record the purchase of the machine and the first payment under each of the 2 assumptions in b. This answer requires four entries!
d. Aliant Corporation sold $100,000,000 face value 6% bonds. The bonds mature in 20 years and pay interest semiannually. The going market rate of interest on bonds of similar risk is 8%. How much will Aliant receive upon the sale of the bonds?
e. Explain why your answer in part d passes the reasonableness test.
f. How much must be invested on January 1, 2011 to receive
Below you will find a series of independent questions involving present value concepts. Show all factors used in present value computations and indicate the table that was used (FV of $1, PV of $1, etc). If you use a financial calculator, show the key strokes you used to compute the answer: N, i/y, PV, FV and PMT
Please download a copy of this quiz and type your answers after each question. Each student should design his/her own spreadsheets. Where amortization schedules are required, they should be labeled as exhibits and attached at the end of your quiz. On mortgage amortization schedules, attach only the first and last page of the schedule.
No “canned program” spreadsheets should be used. While you may discuss the quiz with one another, you are expected to prepare your own solutions independently of other students. Obviously identical spreadsheets will result in a penalty of 30 points on your total score.
a. Sacks Corporation bought a new machine and agreed to pay for it in 5 equal installments of $40,000 at the end of each of the next 5 years. Assuming that the prevailing rate of 6% applies to this contract, how much should Sacks record as the cost of the machine?
b. Design amortization schedules showing the payments under the assumption:
1. Interest is included in the face amount of the note.
2. The note is an interest bearing note.
c. Prepare the entry to record the purchase of the machine and the first payment under each of the 2 assumptions in b. This answer requires four entries!
d. Aliant Corporation sold $100,000,000 face value 6% bonds. The bonds mature in 20 years and pay interest semiannually. The going market rate of interest on bonds of similar risk is 8%. How much will Aliant receive upon the sale of the bonds?
e. Explain why your answer in part d passes the reasonableness test.
f. How much must be invested on January 1, 2011 to receive