Q3TI - Horngren'S Financial And Managerial Accounting

Question

Calculate the present value of the following future cash flows, rounding all calculations to the nearest dollar.

11. \(5,000 received in three years with interest of 10%

12. \)5,000 received in each of the following three years with interest of 10%

13. Payments of \(2,000, \)3,000, and $4,000 received in years 1, 2, and 3, respectively, with interest of 7%

Step-by-Step Solution

Answer

11. Present value of $5,000 received in three years with interest of 10% is $3,755.

12. Present value of $5,000 received in each of the following three years with interest of 10% is $4,545, $4,130, and $3,755.

13. Present value of $2,000, $3,000, and $4,000 received in years 1, 2, and 3, respectively, with interest of 7% is $1,870, $2,619, and $3,264.

Step 1: 11.Computing present value-

$\begin{array}{c}\text{Present value}=\text{Amount of each cash inflow}\times \text{PV factor i}\\ =\text{\$5,000}\times 0.751\\ =\text{\$3,755}\end{array}$

Step 2: 12.Computing present value-

Amount	x	PV factor for i	=	Present value
$5,000	X	0.909	=	$4,545
$5,000	X	0.826	=	$4,130
$5,000	x	0.751	=	$3,755
				$12,430

Step 3: 13. Computing present value-

Amount	x	PV factor for i	=	Present value
$2,000	X	0.935	=	$1,870
$3,000	X	0.873	=	$2,619
$4,000	x	0.816	=	$3,264
				$7,753