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PV of periodic payments, statement of cash flows - both methods

See attached file for proper format.

Number 1
Compute the present value of the following periodic amounts due at the end of the designated periods.

a) $57,500 receivable at the end of each period for 8 periods compounded at 12%.
b) $77,700 payments to be made at the end of each period for 16 periods at 9%.
c) $85,100 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.

Number 2
Condensed financial data of Dora Boots Co. for 2010 and 2009 are presented below.

Dora Boots Co.
Comparative Balance Sheet
As of December 31, 2010 and 2009
2010 2009

Cash $ 1,804 $ 1,165
Receivables 1,755 1,305
Inventory 1,605 1,905
Plant assets 1,905 1,705
Accumulated depreciation (1,205) (1,175)
Long-term investments (Held-to-maturity) 1,305 1,425
----------------------- -------------------------------------
$ 7,169 $ 6,330

Accounts payable $ 1,205 $ 905
Accrued liabilities 205 255
Bonds payable 1,405 1,555
Capital stock 1,905 1,705
Retained earnings 2,449 1,910
--------------------- --------------------------
$ 7,169 $ 6,330
Income Statement
For the Year Ended December 31, 2010
Sales $ 6,895
Cost of goods sold 4,705
Gross margin 2,190
Selling and administrative expenses 935
Income from operations 1,255
Other revenues and gains
Gain on sale of investments 85
Income before tax 1,340
Income tax expense 536
Net income 804
Cash dividends 265
Income retained in business $ 539
Additional information:
During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were
Sold in 2010.

Instructions
Prepare a statement of cash flows, in proper format, using the indirect method.

Number 3
Instructions
Prepare a statement of cash flows, in proper format, using the direct method. (Do not prepare a
reconciliation schedule.)

Attachments

Solution Preview

See attached file.

PV and Cash Flow Statement

Number 1:
a) $57,500 receivable at the end of each period for 8 periods compounded at 12%.
Answer:
Present Value (PV) of receivable can be calculated by the use of following formula: (Cash Outflow) * (PVFA 8, 0.12) (Peterson and Fabozzi 2002).
PV = $57500 * 4
PV = $285,660

b) $77,700 payments to be made at the end of each period for 16 periods at 9%.
Answer:
Present Value (PV) of payable can be calculated by the use of following formula: (Cash Outflow) * (PVFA 16, 0.09) (Peterson and Fabozzi 2002)
PV = $77700 *8.313
PV = $645,920.1

c) $85,100 Payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.
Answer:
Present Value (PV) of payable can be calculated by the use of following formula: = (Cash Outflow) * (PVF year, 0.12) (Peterson and Fabozzi 2002)
Year Cash Outflow PV factor @ 12% PV
7th $ 85100 0.452 $ 38465.2
8th $ 85100 0.404 $ 34380.4
9th $ 85100 0.361 $ 30721.1
10th $ 85100 0.322 $ 27402.2
Total Present Value $ ...

Solution Summary

PV of periodic payments and statement of cash flows for Dora Boots Co are examined.

$2.19