44.

Present value is
a. the value now of a future amount.
b. the amount that must be invested now to produce a known future value.
c. always smaller than the future value.
d. all of these.
47. Assume ABC Company deposits $25,000 with First National Bank in an account earning
interest at 6% per annum, compounded semi-annually. How much will ABC have in the
account after five years if interest is reinvested?
a. $33,598.
b. $25,000.
c. $32,500.
d. $33,456.
63. Mordica Company will receive $100,000 in 7 years. If the appropriate interest rate is
10%, the present value of the $100,000 receipt is
a. $51,000.
b. $51,316.
c. $151,000.
d. $194,872.

65. Milner Company will invest $200,000 today. The investment will earn 6% for 5 years,
with no funds withdrawn. In 5 years, the amount in the investment fund is
a. $200,000.
b. $260,000.
c. $267,646.
d. $268,058.
71. Bella requires $80,000 in four years to purchase a new home. What amount must be
invested today in an investment that earns 6% interest, compounded annually?
a. $63,367.
b. $65,816.
c. $96,891.
d. $100,998.
73. Ethan has $20,000 to invest today at an annual interest rate of 4%. Approximately how
many years will it take before the investment grows to $40,500?
a. 18 years.
b. 20 years.
c. 16 years.
d. 11 years.

60. Greene Company has the following expected pattern of collections on credit sales: 70 percent collected in
the month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month
after the month of sale. The remaining 1 percent is never collected.

At the end of May, Greene Company has the following accounts receivable balances:

From April sales $21,000

From May sales 48,000

Greene expected sales for June are $150,000. How much cash will Greene Company expect to collect in
June?
a. $127,400
b. $129,000
 c. $148,600
d. $152,520
ANS: C
June sales ($150,000 * 70%) $105,000
May sales (160,000 * 15%) 24,000
April sales (140,000 * 14%) 19,600
Total cash collections--June $148,600
1. Patsy Company has the following collection pattern for its accounts receivable:

40 percent in the month of sale

50 percent in the month following the sale
8 percent in the second month following the sale
2 percent uncollectible

The company has recent credit sales as follows:

April: $200,000
May: 420,000
June: 350,000

How much should the company expect to collect on its receivables in June?

ANS:

JUNE COLLECTIONS
From April sales: $200,000  .08 $ 16,000
From May sales:  420,000  .50 210,000
From June sales:  350,000  .40   140,000
Total $366,000
61. For the month of October, Pratt Corporation. predicts total cash collections to be $1 million. Also for
October, Pratt Corporation. estimates that its beginning cash balance will be $50,000 and that it will
borrow cash in the amount of $70,000. If Pratt Corporation. estimates an ending cash balance of $30,000
for October, what must its projected cash disbursements be?
a. $1,090,000
b. $1,120,000
c. $1,070,000
d. $1,020,000
ANS: A
Beginning Cash Balance $ 50,000
Cash Collections 1,000,000
Borrowings 70,000
Cash Available 1,120,000
Less: Ending Cash Balance 30,000
Projected Cash Disbursements $1,090,000

PTS: 1 DIF: Moderate OBJ: 8-3

Pearson Corporation makes an investment today (January 1, 2012). They will receive $10,000
every December 31st for the next six years (2012 – 2017). If Pearson wants to earn 12%
on the investment, what is the most they should invest on January 1, 2012?
 a. $41,114.
b. $46,048.
c. $81,152.
d. $90,890.
101.Allison Jones borrows $50,000 from her bank on January 1. She is to repay the loan in equal annual
installments over 30 years. How much is her annual repayment if the bank charges 10 percent interest?
Present value tables or a financial calculator are required.

a. $1,667
b. $4,200
c. $2,865
d. $5,304
ANS: D
Using the Present Value of Annuity Table (10%, 30 years), the constant is 9.4269.
$50,000/9.4269 = $5,304

PTS: 1 DIF: Moderate OBJ: 15-10

102. Eldon White has just turned 65. He has $100,000 to invest in a retirement annuity. One investment
company has offered to pay Eldon $10,000 per year for 15 years (payments to begin in one year) in
exchange for an immediate $100,000 payment. If Eldon accepts the offer from the investment company,
what is his expected return on the $100,000 investment (assume a return that is compounded annually)?
Present value tables or a financial calculator are required.
a. between 5 and 6 percent
b. between 6 and 7 percent
c. between 7 and 8 percent
d. between 8 and 9 percent
ANS: A
$100,000/$10,000 = 10.000 PV of annuity Table Factor
For 15 years, this factor represents a return on investment between 5 and 6 percent.

PTS: 1 DIF: Moderate OBJ: 15-10