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Determination of a present value

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Reference no: EM13859171

[1] In the determination of a present value, which of the following relationships is true?

A. The higher the future cash flow and the longer the discount period, the lower the present value.
B. The higher the discount rate and the longer the discount period, the lower the present value.
C. The lower the discount rate and the shorter the discount period, the lower the present value.
D. The lower the future cash flow and the shorter the discount period, the lower the present value.

[2] On January 1, Year 3, Saucerer Company bought a building with an assessed value of $220,000 on the date of purchase. Saucerer gave as consideration a $400,000 noninterest-bearing note due on January 1, Year 6. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type at January 1, Year 3, was 10%. What amount of interest expense should be included in Saucerer's Year 4 income statement?

A. $30,053
B. $33,058
C. $13,333
D. $40,000

[3] Potter Corporation is contemplating the purchase of a new piece of equipment with a purchase price of $500,000. It plans to make a 10% down payment and will receive a loan for 25 years at 10% interest. The annual payment required on the loan will be

A. $55,084
B. $49,576
C. $45,000
D. $18,000

[4] On December 30 of the current year, Azrael, Inc., purchased a machine from Abiss Corp. in exchange for a noninterest-bearing note requiring eight payments of $20,000. The first payment was made on December 30, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%.

On Azrael's current year December 31 balance sheet, the note payable to Abiss was

A. $94,244
B. $114,244
C. $102,922
D. $104,611

[5] On March 15, Year 1, Kathleen Corp. adopted a plan to accumulate $1,000,000 by September 1, Year 5. Kathleen plans to make four equal annual deposits to a fund that will earn interest at 10% compounded annually. Kathleen made the first deposit on September 1, Year 1. Kathleen should make four annual deposits (rounded) of

A. $195,883
B. $302,115
C. $215,471
D. $250,000

Reference no: EM13859171

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