Important information about Time Value of Money Problems

1. On January 1, 2007, Aaron Brown Corporation sold a building that cost $250,000 and that had accumulated depreciation of $100,000 on the date of sale. Brown received as consideration a $275,000 noninterest-bearing note due on January 1, 2010. 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 on January 1, 2007, was 9%. At what amount should the gain from the sale of the building be reported? (Round answer to 2 decimal places.)

2. On January 1, 2007, Aaron Brown Corporation purchased 200 of the $1,000 face value, 9%, 10-year bonds of Walters Inc. The bonds mature on January 1, 2017, and pay interest annually beginning January 1, 2008. Brown purchased the bonds to yield 11%. How much did Brown pay for the bonds? (Round answer to 2 decimal places. Hint: Use tables in text.)

3. Aaron Brown Corporation bought a new machine and agreed to pay for it in equal annual installments of $4,000 at the end of each of the next 10 years. Assuming that a prevailing interest rate of 8% applies to this contract, how much should Brown record as the cost of the machine? (Round answer to 2 decimal places.)

4000 (PVF-OA10,8%)
4000 (6.71008) = 26,840.32

4. Aaron Brown Corporation purchased a special tractor on December 31, 2007. The purchase agreement stipulated that Brown should pay $20,000 at the time of purchase and $5,000 at the end of each of the next 8 years. The tractor should be recorded on December 31, 2007, at what amount, assuming an appropriate interest rate of 12%? (Round answer to 2 decimal places.)

5000(PVF-OA5,12%)
5000 (3.60478) = 18,023.90 + 20,000 = 38,023.90

5. Aaron Brown Corporation wants to withdraw $100,000 (including principal) from an investment fund at the end of each year for 9 years. What should be the required initial investment at the beginning of the first year if the fund earns 11%? (Round answer to 0 decimal places.)

100,000 (PVS-OA9,11%)
100,000 (5.53705) = 553,705
The "including principal" is stumping me.....

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Solution Summary

The solution has various time value of money problems of Aaron Brown relating to calculation of present value and future value of annuity and single sum.