GCCCD Present Value Finance Questions

Question Description

I’m working on a finance test / quiz prep and need an explanation and answer to help me learn.

1.An investor purchases a 15-year, $1,000 par value bond that pays semiannual interest of $30. If the semiannual market rate of interest is 6%, what is the current market value of the bond? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

2.Chancellor Ltd. sells an asset with a $2.8 million fair value to Sophie Inc. Sophie agrees to make eight equal payments, each to be paid one year apart, commencing on the date of sale. The payments include principal and 8% annual interest. Compute the annual payments.((FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

3. On January 1, 2021, Elite Advertising was contracted to run a marketing campaign for Pharm King’s new dieting pills. In addition to getting a base fee of $204,000 for the 3-year campaign, Elite also may get an additional 5% of the base fee as a bonus if a targeted sales level is reached at the end of three years. Elite currently lacks sufficient information to make an estimate of the likelihood of the expected bonus, with the marketing director indicating that “If you forced me to make an estimate, I’d say we have a 50/50 chance. But don’t quote me on that – it’s really too early to tell.” Elite concludes this contract qualifies for revenue recognition over time, and estimates variable consideration using the most likely amount. How much revenue should Elite recognize as of December 31, 2021?

4. Orange Inc. offers a discount on an extended warranty on its oPhone when the warranty is purchased at the time the oPhone is purchased. The warranty normally has a price of $134, but Orange offers it for $112 when purchased along with an oPhone. Orange anticipates a 75% chance that a customer will purchase the extended warranty along with the oPhone. Assume Orange sells to 1,000 oPhones with the extended warranty discount offer. What is the total stand-alone selling price that Orange would use for the extended warranty discount option for purposes of allocating revenue among the performance obligations in those 1,000 oPhone contracts? 5. On November 1, 2021, Taylor signed a one-year contract to provide handyman services on an as-needed basis to King Associates, with the contract to start immediately. King agreed to pay Taylor $5,280 for the one-year period. Taylor is confident that King will pay that amount, but payment is not scheduled to occur until 2022. Taylor should recognize revenue in 2021 in the amount of 6. Kunkle Company wishes to earn 11% annually on its investments. If Kunkle makes an investment that equals or exceeds that rate, it considers it a success. Assume that Kunkle invests $3.2 million and gets $400,000 in return at the end of each year for X years. What is the minimum value of X (number of years) for which Kunkle will consider the investment a success? Assume that Kunkle can’t invest for fractional parts of a year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 7. Minarski Electronics sells computers and provides hardware maintenance services. On April 1^st, Minarski sold a package deal containing a computer and a one-year unlimited maintenance/repair service for the computer at a bundle price of $1,000. If sold separately, the computer costs $894 and the one-year unlimited maintenance/repair service costs $306. How much revenue does Minarski Electronics recognize for the month ended April 30^th, assuming that revenue is accrued monthly?

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