# Wk 2 Problems

CHAPTER TWO (PG.42)
A1. (Present and future values)
a.   What is the future value of \$2,000 invested today if it earns 20% interest for one year? For two years?
FV = PV(1 + r)n
FV = 2,000(1 + 0.20)1
FV = 2,000(1.20)
FV = 2,400

FV = PV(1 + r)n
FV = 2,000(1 + 0.20)2
FV = 2,000(1.44)
FV = 2,880

b.   What is the present value of \$2,000 discounted at 20% if it is received in one year? In two years?
PV = FV / (1 + r)n
PV = 2,000 / (1 + 0.20)1
PV = 2,000 / (1.20)
PV = 1,666.67

PV = FV / (1 + r)n
PV = 2,000 / (1 + 0.20)2
PV = 2,000 / (1.44)
PV = 1,388.89

B1. (Present value)
What is the present value of \$15,000 to be received 11 years from today when the annual discount rate is 10%?

PV = FV / (1 + r)n
PV = 15,000 / (1 + 0.10)11
PV = 15,000 / (2.853117)
PV = 5,257.41

CHAPTER THREE (PG.58)
B1. (Financial statements) Consider the following financial information for Sunny Fruit Co.

Balance Sheet, December 31 Partial Income Statement,
(Figures in millions of dollars) latest year ending December 31
(Figures in millions of dollars)
Assets Latest Year Previos Year Laibilites and Stockholders' Equity Latest year Previous Year
Current Assets 400 200 Current Laibilites 150 195 Sales 900
Net Fixed Assets 600 400 Long-Term Debt 500 100 Cost of goods sold 200