Accounting and Finance: Present Value, Annuity, Future Value, Taxation and Investment Returns

Running head: ACCOUNTING AND FINANCE
Accounting and finance
Name of the University
Author Note

1
ACCOUNTING AND FINANCE
Table of Contents
Answer to Question 1:................................................................................................................2
Requirement a:.......................................................................................................................2
Requirement b:.......................................................................................................................3
Requirement c:.......................................................................................................................3
Answer to Question 2:................................................................................................................4
Requirement i:........................................................................................................................4
Requirement ii:.......................................................................................................................5
Answer to question 3:.................................................................................................................6
Answer to Question 4:................................................................................................................8
Requirement i:........................................................................................................................8
Requirement ii:.......................................................................................................................9
Requirement iii:....................................................................................................................10
Requirement iv:....................................................................................................................10
Requirement v:.....................................................................................................................11
Requirement vi:....................................................................................................................11
Requirement vii:...................................................................................................................12
Requirement viii:..................................................................................................................12
Requirement ix:....................................................................................................................13
References list:.........................................................................................................................14

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ACCOUNTING AND FINANCE
Answer to Question 1:
Requirement a:
Sandy would receive a stream of cash flows within the next 4 years. Therefore, it is
necessary to determine the discounted values of the expected cash flow stream for computing
the present value of the whole investment. The formula of discounted cash flow is shown
below:
DCF= CFn
(1+ r)n
Where, CFn = Cash flow of n period
r= Interest Rate
n = Period
By using the stated formula, the present value of the investment is calculated below:
ΣDCF = CF1
(1+r )1 + CF2
(1+r )2 + CF3
(1+r )3 + CF4
(1+r )4 + CF5
(1+r )5
= 400
(1+9 % )1 + 800
(1+9 % )2 + 500
(1+9 % )3 + 400
(1+9 % )4 + 300
(1+9 % )5
= 400
1.09 + 800
1.188 + 500
1.295 + 400
1.412 + 300
1.539
= 366.97+673.34 +386.09+283.37+ 194.98
= 1904.76
As per the above calculations, it can be stated that Sandy has to pay $1,904.76 for the
investment option to earn the given cash flow streams.

3
ACCOUNTING AND FINANCE
Requirement b:
Lee has to repay the loan of $100,000 by 20 equal installments. Such equal
installments for a specified period are referred as annuity. The formula of annuity is given
below:
P = r (PV )
1−(1+ r)−n
Where,PV = Present Value of Loan = $100,000
r= Interest Rate per period = (10%/4) = 2.5%
n = Nos. of Quarterly Installments = 20
Therefore, P = r (PV )
1−(1+r)−n
= (2.5 % x $ 100,000)
1−(1+2.5 % )−20
= 2500
0.3897
= 6414.71
As per the calculations above, the quarterly payment of Lee will be $6,414.71.
Requirement c:
Dianne would receive the monthly payments after two years of investment. Hence, it
is necessary to compute the investment value after two years. The future value of the
investment can be computed by using the following formula:
FV = PV x (1+r )n