26) Amanda is ready to retire and as a retirement benefit, she can choose to take $380,000 now or $50,000 at the end of each year for a period of 10 years. To compare the two options, she must calculate the present value of both alternatives. She believes a discount rate of 5% would be the most appropriate rate to apply. How much is the present value if she takes the cash as a lump sum right now? Please refer to the following data, if needed:
Present Value of an Annuity of $1 

5% 
6% 
7% 
8% 
9% 
10% 

1 
0.952 
0.943 
0.935 
0.926 
0.917 
0.909 
2 
1.859 
1.833 
1.808 
1.783 
1.759 
1.736 
3 
2.723 
2.673 
2.624 
2.577 
2.531 
2.487 
4 
3.546 
3.465 
3.387 
3.312 
3.240 
3.170 
5 
4.329 
4.212 
4.100 
3.993 
3.890 
3.791 
6 
5.076 
4.917 
4.767 
4.623 
4.486 
4.355 
7 
5.786 
5.582 
5.389 
5.206 
5.033 
4.868 
8 
6.463 
6.210 
5.971 
5.747 
5.535 
5.335 
9 
7.108 
6.802 
6.515 
6.247 
5.995 
5.759 
10 
7.722 
7.360 
7.024 
6.710 
6.418 
6.145 
A) $380,000
B) $386,100
C) $321,000
D) $399,000
Answer: A
Diff: 2
LO: 213
EOC Ref: S217
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
27) Amanda is ready to retire and as a retirement benefit, she can choose to take $380,000 now or $50,000 at the end of each year for a period of 10 years. To compare the two options, she must calculate the present value of both alternatives. She believes a discount rate of 5% would be the most appropriate rate to apply. How much is the present value if she takes the option of $50,000 a year for 10 years? Please refer to the following data, if needed:
Present Value of an Annuity of $1 

5% 
6% 
7% 
8% 
9% 
10% 

1 
0.952 
0.943 
0.935 
0.926 
0.917 
0.909 
2 
1.859 
1.833 
1.808 
1.783 
1.759 
1.736 
3 
2.723 
2.673 
2.624 
2.577 
2.531 
2.487 
4 
3.546 
3.465 
3.387 
3.312 
3.240 
3.170 
5 
4.329 
4.212 
4.100 
3.993 
3.890 
3.791 
6 
5.076 
4.917 
4.767 
4.623 
4.486 
4.355 
7 
5.786 
5.582 
5.389 
5.206 
5.033 
4.868 
8 
6.463 
6.210 
5.971 
5.747 
5.535 
5.335 
9 
7.108 
6.802 
6.515 
6.247 
5.995 
5.759 
10 
7.722 
7.360 
7.024 
6.710 
6.418 
6.145 
A) $380,000
B) $386,100
C) $321,000
D) $399,000
Answer: B
Explanation: B) Calculations: 7.722 × $50,000 = $386,100
Diff: 2
LO: 213
EOC Ref: S217
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
28) Simms Manufacturing is considering two alternative investment proposals with the following data:
Proposal X 
Proposal Y 

Investment 
$620,000 
$400,000 
Useful life 
8 years 
8 years 
Estimated annual net cash inflows for 8 years 
$130,000 
$80,000 
Residual value 
$60,000 
$0 
Depreciation method 
Straightline 
Straightline 
Discount rate 
14% 
10% 
What is the total present value of future cash inflows from Proposal Y?
Present Value of an Annuity of $1 

5% 
6% 
7% 
8% 
9% 
10% 

1 
0.952 
0.943 
0.935 
0.926 
0.917 
0.909 
2 
1.859 
1.833 
1.808 
1.783 
1.759 
1.736 
3 
2.723 
2.673 
2.624 
2.577 
2.531 
2.487 
4 
3.546 
3.465 
3.387 
3.312 
3.240 
3.170 
5 
4.329 
4.212 
4.100 
3.993 
3.890 
3.791 
6 
5.076 
4.917 
4.767 
4.623 
4.486 
4.355 
7 
5.786 
5.582 
5.389 
5.206 
5.033 
4.868 
8 
6.463 
6.210 
5.971 
5.747 
5.535 
5.335 
9 
7.108 
6.802 
6.515 
6.247 
5.995 
5.759 
10 
7.722 
7.360 
7.024 
6.710 
6.418 
6.145 
A) $266,750
B) $426,800
C) $436,800
D) $536,800
Answer: B
Explanation: B) Calculations: $80,000 × 5.335 = $426,800
Diff: 2
LO: 213
EOC Ref: S217
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
29) Simms Manufacturing is considering two alternative investment proposals with the following data:
Proposal X 
Proposal Y 

Investment 
$620,000 
$400,000 
Useful life 
8 years 
8 years 
Estimated annual net cash inflows for 8 years 
$130,000 
$80,000 
Residual value 
$0 
$0 
Depreciation method 
Straightline 
Straightline 
Discount rate 
9% 
10% 
What is the total present value of future cash inflows from Proposal X?
Present Value of an Annuity of $1 

5% 
6% 
7% 
8% 
9% 
10% 

1 
0.952 
0.943 
0.935 
0.926 
0.917 
0.909 
2 
1.859 
1.833 
1.808 
1.783 
1.759 
1.736 
3 
2.723 
2.673 
2.624 
2.577 
2.531 
2.487 
4 
3.546 
3.465 
3.387 
3.312 
3.240 
3.170 
5 
4.329 
4.212 
4.100 
3.993 
3.890 
3.791 
6 
5.076 
4.917 
4.767 
4.623 
4.486 
4.355 
7 
5.786 
5.582 
5.389 
5.206 
5.033 
4.868 
8 
6.463 
6.210 
5.971 
5.747 
5.535 
5.335 
9 
7.108 
6.802 
6.515 
6.247 
5.995 
5.759 
10 
7.722 
7.360 
7.024 
6.710 
6.418 
6.145 
A) $878,340
B) $703,070
C) $614,230
D) $719,550
Answer: D
Explanation: D) Calculations: = 5.535 × $130,000 = $719,550
Diff: 2
LO: 213
EOC Ref: S217
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
30) Simms Manufacturing is considering two alternative investment proposals with the following data:
Proposal X 
Proposal Y 

Investment 
$620,000 
$400,000 
Useful life 
8 years 
8 years 
Estimated annual net cash inflows for 8 years 
$130,000 
$80,000 
Residual value 
$60,000 
$0 
Depreciation method 
Straightline 
Straightline 
Discount rate 
14% 
10% 
What is the net present value of Proposal Y, taking into consideration the initial outlay and the subsequent
cash inflows?
Present Value of an Annuity of $1 

5% 
6% 
7% 
8% 
9% 
10% 

1 
0.952 
0.943 
0.935 
0.926 
0.917 
0.909 
2 
1.859 
1.833 
1.808 
1.783 
1.759 
1.736 
3 
2.723 
2.673 
2.624 
2.577 
2.531 
2.487 
4 
3.546 
3.465 
3.387 
3.312 
3.240 
3.170 
5 
4.329 
4.212 
4.100 
3.993 
3.890 
3.791 
6 
5.076 
4.917 
4.767 
4.623 
4.486 
4.355 
7 
5.786 
5.582 
5.389 
5.206 
5.033 
4.868 
8 
6.463 
6.210 
5.971 
5.747 
5.535 
5.335 
9 
7.108 
6.802 
6.515 
6.247 
5.995 
5.759 
10 
7.722 
7.360 
7.024 
6.710 
6.418 
6.145 
A) $0
B) $26,800 positive
C) $136,800 positive
D) $133, 250 negative
Answer: B
Explanation: B) Calculations: (5.335 × $80,000) – $400,000 = $26,800
Diff: 2
LO: 213
EOC Ref: S217
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
31) Simms Manufacturing is considering two alternative investment proposals with the following data:
Proposal X 
Proposal Y 

Investment 
$620,000 
$400,000 
Useful life 
8 years 
8 years 
Estimated annual net cash inflows for 8 years 
$130,000 
$80,000 
Residual value 
$0 
$0 
Depreciation method 
Straightline 
Straightline 
Discount rate 
9% 
10% 
What is the net present value of Proposal X, taking into consideration the initial outlay and the subsequent
cash inflows?
Present Value of an Annuity of $1 

5% 
6% 
7% 
8% 
9% 
10% 

1 
0.952 
0.943 
0.935 
0.926 
0.917 
0.909 
2 
1.859 
1.833 
1.808 
1.783 
1.759 
1.736 
3 
2.723 
2.673 
2.624 
2.577 
2.531 
2.487 
4 
3.546 
3.465 
3.387 
3.312 
3.240 
3.170 
5 
4.329 
4.212 
4.100 
3.993 
3.890 
3.791 
6 
5.076 
4.917 
4.767 
4.623 
4.486 
4.355 
7 
5.786 
5.582 
5.389 
5.206 
5.033 
4.868 
8 
6.463 
6.210 
5.971 
5.747 
5.535 
5.335 
9 
7.108 
6.802 
6.515 
6.247 
5.995 
5.759 
10 
7.722 
7.360 
7.024 
6.710 
6.418 
6.145 
A) $23,070 positive
B) $99,550 positive
C) $13,070 negative
D) $4,130 negative
Answer: B
Explanation: B) Calculations: (5.535 × $130,000) – $620,000 = $99,550
Diff: 2
LO: 213
EOC Ref: S217
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
32) If you invest $3,000 today at 7% interest, what is the value of the investment at the end of 5 years?
Future Value of $1 

4% 
5% 
6% 
7% 
8% 
9% 

1 
1.040 
1.050 
1.060 
1.070 
1.080 
1.090 
2 
1.082 
1.103 
1.124 
1.145 
1.166 
1.188 
3 
1.125 
1.158 
1.191 
1.225 
1.260 
1.295 
4 
1.170 
1.216 
1.262 
1.311 
1.360 
1.412 
5 
1.217 
1.276 
1.338 
1.403 
1.469 
1.539 
6 
1.265 
1.340 
1.419 
1.501 
1.587 
1.677 
7 
1.316 
1.407 
1.504 
1.606 
1.714 
1.828 
8 
1.369 
1.477 
1.594 
1.718 
1.851 
1.993 
9 
1.423 
1.551 
1.689 
1.838 
1.999 
2.172 
10 
1.480 
1.629 
1.791 
1.967 
2.159 
2.367 
A) $3,210
B) $4,367
C) $4,190
D) $4,209
Answer: D
Explanation: D) Calculations: 1.403 × $3,000 = $4,209
Diff: 1
LO: 213
EOC Ref: S218
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
33) If you invest $1,000 at the end of each of the next 5 years and the investment earns 4% interest, what is the value of the investment at the end of 5 years?
Future Value of an Annuity of $1 

4% 
5% 
6% 
7% 
8% 
9% 

1 
1.000 
1.000 
1.000 
1.000 
1.000 
1.000 
2 
2.040 
2.050 
2.060 
2.070 
2.080 
2.090 
3 
3.122 
3.153 
3.184 
3.215 
3.246 
3.278 
4 
4.246 
4.310 
4.375 
4.440 
4.506 
4.573 
5 
5.416 
5.526 
5.637 
5.751 
5.867 
5.985 
6 
6.633 
6.802 
6.975 
7.153 
7.336 
7.523 
7 
7.898 
8.142 
8.394 
8.654 
8.923 
9.200 
8 
9.214 
9.549 
9.897 
10.26 
10.64 
11.03 
9 
10.58 
11.03 
11.49 
11.98 
12.49 
13.02 
10 
12.01 
12.58 
13.18 
13.82 
14.49 
15.19 
A) $5,416
B) $4,310
C) $5,000
D) $5,200
Answer: A
Explanation: A) Calculations: 5.416 × $1,000 = $5,416
Diff: 1
LO: 213
EOC Ref: S218
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
34) Jim wants to invest $5,000 a year for the next 25 years to prepare for his retirement. If he wants to calculate the value of his investment at the end of the 25 year period, which of the following tables would be the best for him to use?
A) Present Value of $1
B) Present Value of an Annuity of $1
C) Future Value of $1
D) Future Value of an Annuity of $1
Answer: D
Diff: 1
LO: 213
EOC Ref: S218
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement
35) Wilhelmina has just received an inheritance of $50,000, and she would like to put it into an investment portfolio for 20 years. To calculate the value of the investment at the end of the 20 year period, which of the following tables would be the best for her to use?
A) Present Value of $1
B) Present Value of an Annuity of $1
C) Future Value of $1
D) Future Value of an Annuity of $1
Answer: C
Diff: 1
LO: 213
EOC Ref: S218
AACSB: Analytic Skills
AICPA Business: Critical Thinking
AICPA Functional: Measurement