MicroLink Information Technology & Business College

Department of Accounting
Financial Management

Chapter Five (Time Value of money)

Individual Assignment for Acct Department Second Year Students (5%)

. How much must you deposit now on January 1,1999 to have a balance of Br. 10,000 on
December 31, 2003? Interest is compounded at an 8% annual rate.
2. XYZ company plans to accumulate Br. 500,000 to retire its long-term debt on December 31,
2010. To achieve the plan, the company has just deposited Br. 100,000 today January 1,2003.
But the company knows that this deposit alone would not enable to achieve the target and
wants to make equal annual deposits starting January 1,2005 until January 1,2010. Assuming
the appropriate interest rate is 6% compounded annually, how much should XYZ deposit
every January so as to achieve its plan?
3. On January 1,1998, Moon Corporation sold a motor vehicle to Sun Company. Sun signed a
Br. 200,000 non-interest bearing promissory note due on January 1, 2001. The prevailing
interest rate for a similar note on January 1, 1998, was 9%. How much is the selling price of
the motor vehicle for Moon Corporation?
4. If you invest Birr 5, 000 today at a compound interest of 9 percent, what will be its future
value after 15 years?
5. You want to take a world tour which costs Birr 1, 000, 000, the cost is expected to remain
unchanged in normal terms. Your can save Birr 80, 000 annually to fulfill your desire. How
long will you have to wait of your savings earn a return of 14 percent annum?
6. How large must each annual payment be for a Br. 100,000 loan to be repaid in equal
installments at the end of each of the next 5 years? The interest rate is 10%, compounded
annually.
7. Assume the above example except that the first payment is to be made after 1 year from the
date of purchase. How much would be the cost of the machinery now for Ruth Corporation?
8. What do you think are some of the applications of the present value of a perpetuity?