Chapter 05 - Introduction to Valuation: The Time Value of Money
26. Today, you earn a salary of $36,000. What will be your annual salary twelve years from now if you earn annual raises of 3.6 percent? A. $55,032.54 B. $57,414.06 C. $58,235.24 D. $59,122.08 E. $59,360.45
Future value = $36,000 ? (1 + .036)12 = $55,032.54
AACSB: Analytic Bloom's: Application Difficulty: Basic
Learning Objective: 5-1 Section: 5.1
Topic: Future value
27. You own a classic automobile that is currently valued at $147,900. If the value increases by 6.5 percent annually, how much will the automobile be worth ten years from now? A. $244,035.00 B. $251,008.17 C. $270,013.38 D. $277,628.63 E. $291,480.18
Future value = $147,900 ? (1 + .065)10 = $277,628.63
AACSB: Analytic Bloom's: Application Difficulty: Basic
Learning Objective: 5-1 Section: 5.1
Topic: Future value
5-33
Chapter 05 - Introduction to Valuation: The Time Value of Money
28. You hope to buy your dream car four years from now. Today, that car costs $82,500. You expect the price to increase by an average of 4.8 percent per year over the next four years. How much will your dream car cost by the time you are ready to buy it? A. $98,340.00 B. $98,666.67 C. $99,517.41 D. $99,818.02 E. $100,023.16
Future value = $82,500 ? (1 + .048)4 = $99,517.41
AACSB: Analytic Bloom's: Application Difficulty: Basic
Learning Objective: 5-1 Section: 5.1
Topic: Future value
5-34
Chapter 05 - Introduction to Valuation: The Time Value of Money
29. This morning, TL Trucking invested $80,000 to help fund a company expansion project planned for 4 years from now. How much additional money will the firm have 4 years from now if it can earn 5 percent rather than 4 percent on its savings? A. $2,940.09 B. $3,651.82 C. $4,008.17 D. $4,219.68 E. $4,711.08
Future value = $80,000 ? (1 + .05)4 = $97,240.50 Future value = $80,000 ? (1 + .04)4 = $93,588.68 Difference = $97,240.50 - $93,588.68 = $3,651.82
AACSB: Analytic Bloom's: Analysis
Difficulty: Intermediate Learning Objective: 5-1 Section: 5.1
Topic: Future value
5-35
Chapter 05 - Introduction to Valuation: The Time Value of Money
30. You just received $225,000 from an insurance settlement. You have decided to set this money aside and invest it for your retirement. Currently, your goal is to retire 25 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 10.5 percent rather than just 8 percent? A. $417,137 B. $689,509 C. $1,050,423 D. $1,189,576 E. $1,818,342
Future value = $225,000 ? (1 + .105)25 = $2,730,483 Future value = $225,000 ? (1 + .08)25 = $1,540,907 Difference = $2,730,483 - $1,540,907 = $1,189,576
AACSB: Analytic Bloom's: Analysis
Difficulty: Intermediate Learning Objective: 5-1 Section: 5.1
Topic: Future value
5-36
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