Question Tag: Present Value

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FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

Question

MK Plc is considering the best way to finance the replacement for a particular high specification piece of equipment that has become too costly to maintain. The replacement equipment is estimated to have a useful life of 4 years with no residual value after that time.

Two alternative financing schemes are being evaluated:

Scheme A: Buy the equipment outright funded by a bank loan
Scheme B: Enter into a four-year finance lease

Scheme A: Buy outright, funded by a bank loan
MK Plc could purchase the equipment outright at a cost of N200 million on July 1, 2016. MK Plc can normally borrow at an annual interest rate of 13% per year.

Scheme B: Four-year finance lease
The equipment would be delivered on July 1, 2016, and MK Plc would pay a fixed amount of N58,790,000 each year in advance, starting on July 1, 2016, for four years. At the end of four years, ownership of the equipment will pass to MK Plc without further payment.

Other Information:

MK Plc has a cost of equity of 20% and WACC of 16%
MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

Answer

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Tags: Discount rate, Equipment Financing, Financing, Lease, Loan, Present Value
Level: Level 3

Topic: Financing Decisions and Capital Markets

BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Calculate the present value of N12,000 received in one year at a 5% time preference rate.

Question

Assuming a 5% time preference rate, what is the present value of N12,000 received one year from now?
A. N11,428.80
B. N11,539.90
C. N12,428.80
D. N12,539.90
E. N13,528.80

Answer

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Tags: Financial Calculations, Present Value, Time Preference Rate
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Calculate the present value needed to reach a lump sum in 5 years with compound interest.

Question

Lokoson must pay a lump sum of N960,000 in 5 years. What amount deposited today at 5.8% compounded annually will make up the sum of money?
A. N724,200.36
B. N724,300.37
C. N725,200.36
D. N725,300.37
E. N725,300.37

Answer

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Tags: Compound Interest, Lump Sum, Present Value, Time value of money
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

FR – NOV 2016 – L2 – Q6b – Leases (IFRS 16)

Calculation of present value of lease payments and determination of lease type for equipment leasing arrangement.

Question

Ijaw Oil Plc has entered into agreement to lease a plant and equipment from Ogoni Leasing Company Limited. The lease period of the plant and equipment is six (6) years. The agreement provides that Ogoni Leasing Company Limited will incur upkeep expenses. The cost of the plant and equipment is N900,000,000,000. The economic useful life is 20 years. Ijaw Oil Plc is to pay annual lease rentals of N150,000,000 in advance over 6 years after which the plant and equipment revert to the lessor. The implicit interest rate is 22% per annum which is stated below:

Year	0	1	2	3	4	5	6
PV(N1)	1.0000	0.8197	0.6719	0.5507	0.4514	0.3700	0.3033

You are required to:

i. Calculate the present value of the lease rental of the equipment. (4 Marks)

ii. Identify with justification the kind of lease involved (3 Marks)

iii. Advise on how to treat the lease rentals paid by Ijaw Oil Plc. in the financial statements (1 Mark)

Answer

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Tags: Lease Classification, Lease Payments, Lease Treatment, Lease Type, Present Value
Level: Level 2

Topic: Leases
Series: NOV 2016

QTB – May 2017 – L1 – SB – Q3a – Mathematics

Determine the annual savings required to accumulate a future sum under annuity terms.

Question

A lawyer plans to save a certain amount of money per annum for 5 years on the first day of the year. If the interest rate is 8%, for him to receive N696,910.50, determine x. (10 Marks)

Answer

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Tags: Annuity, Interest Rate, Present Value, Savings
Level: Level 1

Topic: Mathematics
Series: MAY 2017

QTB – Nov 2015 – L1 – SA – Q18 – Mathematics of Business Finance

This question identifies the term used to describe the process of calculating present value from future value.

Question

The term used to describe the process of working backwards in time to find the present value from the future value of an investment is known as:

A. Discount
B. Discounting
C. Discount Rate
D. Annuity
E. Amortization

Answer

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Tags: Discounting, Present Value, Time value of money
Level: Level 1

Topic: Mathematics of Business Finance
Series: NOV 2015

QTB – May 2015 – L1 – SA – Q4 – Operations Research

Understanding when a business venture is considered worthwhile.

Question

A business venture is considered as worthwhile when the:

A. Present value of revenue is positive
B. Present value of the cost is positive
C. Net present value is positive
D. Net present value is equal to zero
E. Internal rate of return is positive

Answer

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Tags: Internal Rate of Return, Net Present Value, Present Value
Level: Level 1

Topic: Operations Research
Series: MAY 2015

QTB – May 2015 – L1 – SA – Q1 – Mathematics

Calculating how long it takes for N500 to appreciate to N10,000 at 5% continuous interest.

Question

The present value of NA to be paid in t years in the future (assuming 5% continuous interest rate) is P (A, t) = Ae^0.05t. How long will it take N500 to appreciate to N10,000?

A. 5.99 years
B. 26.00 years
C. 52.00 years
D. 59.91 years
E. 599.10 years

Answer

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Tags: Continuous Interest, Present Value, Time value of money
Level: Level 1

Topic: Mathematics
Series: MAY 2015

BMF – May 2021 – L1 – SA – Q17 – Investment Decisions

Calculates the present value of N120,000 received two years from now at a time preference rate of 6.5%.

Question

Assuming a 6.5% time preference rate, what is the present value of N120,000 received two years from now?
A. ₦104,799.11
B. ₦105,799.11
C. ₦106,799.11
D. ₦107,799.11
E. ₦108,799.11

Answer

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Tags: Financial Calculations, Present Value, Time value of money
Level: Level 1

Topic: Investment Decisions
Series: MAY 2021

BMF – Nov 2023 – L1 – SA – Q5 – Investment Decisions

Calculate the present value of a future amount discounted at 12%.

Question

Calculate the present value, discounted at 12 percent, of receiving N300,000 at the end of year 6.

A. 151,989.34
B. 162,999.34
C. 173,989.34
D. 184,989.34
E. 195,989.34

Answer

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Tags: Discounting, Present Value, Time value of money
Level: Level 1

Topic: Investment Decisions
Series: NOV 2023

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

Question

Two alternative financing schemes are being evaluated:

Scheme A: Buy the equipment outright funded by a bank loan
Scheme B: Enter into a four-year finance lease

Other Information:

MK Plc has a cost of equity of 20% and WACC of 16%
MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discount rate, Equipment Financing, Financing, Lease, Loan, Present Value
Level: Level 3

Topic: Financing Decisions and Capital Markets

BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Calculate the present value of N12,000 received in one year at a 5% time preference rate.

Question

Assuming a 5% time preference rate, what is the present value of N12,000 received one year from now?
A. N11,428.80
B. N11,539.90
C. N12,428.80
D. N12,539.90
E. N13,528.80

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Calculations, Present Value, Time Preference Rate
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Calculate the present value needed to reach a lump sum in 5 years with compound interest.

Question

Answer

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Tags: Compound Interest, Lump Sum, Present Value, Time value of money
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: NOV 2020

FR – NOV 2016 – L2 – Q6b – Leases (IFRS 16)

Calculation of present value of lease payments and determination of lease type for equipment leasing arrangement.

Question

Year	0	1	2	3	4	5	6
PV(N1)	1.0000	0.8197	0.6719	0.5507	0.4514	0.3700	0.3033

You are required to:

i. Calculate the present value of the lease rental of the equipment. (4 Marks)

ii. Identify with justification the kind of lease involved (3 Marks)

iii. Advise on how to treat the lease rentals paid by Ijaw Oil Plc. in the financial statements (1 Mark)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Lease Classification, Lease Payments, Lease Treatment, Lease Type, Present Value
Level: Level 2

Topic: Leases
Series: NOV 2016

QTB – May 2017 – L1 – SB – Q3a – Mathematics

Determine the annual savings required to accumulate a future sum under annuity terms.

Question

A lawyer plans to save a certain amount of money per annum for 5 years on the first day of the year. If the interest rate is 8%, for him to receive N696,910.50, determine x. (10 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Annuity, Interest Rate, Present Value, Savings
Level: Level 1

Topic: Mathematics
Series: MAY 2017

QTB – Nov 2015 – L1 – SA – Q18 – Mathematics of Business Finance

This question identifies the term used to describe the process of calculating present value from future value.

Question

The term used to describe the process of working backwards in time to find the present value from the future value of an investment is known as:

A. Discount
B. Discounting
C. Discount Rate
D. Annuity
E. Amortization

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discounting, Present Value, Time value of money
Level: Level 1

Topic: Mathematics of Business Finance
Series: NOV 2015

QTB – May 2015 – L1 – SA – Q4 – Operations Research

Understanding when a business venture is considered worthwhile.

Question

A business venture is considered as worthwhile when the:

A. Present value of revenue is positive
B. Present value of the cost is positive
C. Net present value is positive
D. Net present value is equal to zero
E. Internal rate of return is positive

Answer

Find Related Questions by Tags, levels, etc.

Tags: Internal Rate of Return, Net Present Value, Present Value
Level: Level 1

Topic: Operations Research
Series: MAY 2015

QTB – May 2015 – L1 – SA – Q1 – Mathematics

Calculating how long it takes for N500 to appreciate to N10,000 at 5% continuous interest.

Question

The present value of NA to be paid in t years in the future (assuming 5% continuous interest rate) is P (A, t) = Ae^0.05t. How long will it take N500 to appreciate to N10,000?

A. 5.99 years
B. 26.00 years
C. 52.00 years
D. 59.91 years
E. 599.10 years

Answer

Find Related Questions by Tags, levels, etc.

Tags: Continuous Interest, Present Value, Time value of money
Level: Level 1

Topic: Mathematics
Series: MAY 2015

BMF – May 2021 – L1 – SA – Q17 – Investment Decisions

Calculates the present value of N120,000 received two years from now at a time preference rate of 6.5%.

Question

Assuming a 6.5% time preference rate, what is the present value of N120,000 received two years from now?
A. ₦104,799.11
B. ₦105,799.11
C. ₦106,799.11
D. ₦107,799.11
E. ₦108,799.11

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Calculations, Present Value, Time value of money
Level: Level 1

Topic: Investment Decisions
Series: MAY 2021

BMF – Nov 2023 – L1 – SA – Q5 – Investment Decisions

Calculate the present value of a future amount discounted at 12%.

Question

Calculate the present value, discounted at 12 percent, of receiving N300,000 at the end of year 6.

A. 151,989.34
B. 162,999.34
C. 173,989.34
D. 184,989.34
E. 195,989.34

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discounting, Present Value, Time value of money
Level: Level 1

Topic: Investment Decisions
Series: NOV 2023

Question Tag: Present Value

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FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

a.

b.

You're reporting an error for "FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets"

BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Calculate the present value of N12,000 received in one year at a 5% time preference rate.

You're reporting an error for "BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets"

BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Calculate the present value needed to reach a lump sum in 5 years with compound interest.

You're reporting an error for "BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets"

FR – NOV 2016 – L2 – Q6b – Leases (IFRS 16)

Calculation of present value of lease payments and determination of lease type for equipment leasing arrangement.

You're reporting an error for "FR – NOV 2016 – L2 – Q6b – Leases (IFRS 16)"

QTB – May 2017 – L1 – SB – Q3a – Mathematics

Determine the annual savings required to accumulate a future sum under annuity terms.

You're reporting an error for "QTB – May 2017 – L1 – SB – Q3a – Mathematics"

QTB – Nov 2015 – L1 – SA – Q18 – Mathematics of Business Finance

This question identifies the term used to describe the process of calculating present value from future value.

You're reporting an error for "QTB – Nov 2015 – L1 – SA – Q18 – Mathematics of Business Finance"

QTB – May 2015 – L1 – SA – Q4 – Operations Research

Understanding when a business venture is considered worthwhile.

You're reporting an error for "QTB – May 2015 – L1 – SA – Q4 – Operations Research"

QTB – May 2015 – L1 – SA – Q1 – Mathematics

Calculating how long it takes for N500 to appreciate to N10,000 at 5% continuous interest.

You're reporting an error for "QTB – May 2015 – L1 – SA – Q1 – Mathematics"

BMF – May 2021 – L1 – SA – Q17 – Investment Decisions

Calculates the present value of N120,000 received two years from now at a time preference rate of 6.5%.

You're reporting an error for "BMF – May 2021 – L1 – SA – Q17 – Investment Decisions"

BMF – Nov 2023 – L1 – SA – Q5 – Investment Decisions

Calculate the present value of a future amount discounted at 12%.

You're reporting an error for "BMF – Nov 2023 – L1 – SA – Q5 – Investment Decisions"

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

a.

b.

You're reporting an error for "FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets"

BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets

Calculate the present value of N12,000 received in one year at a 5% time preference rate.

You're reporting an error for "BMF – Nov 2020 – L1 – SA – Q16 – Basics of Business Finance and Financial Markets"

BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

Calculate the present value needed to reach a lump sum in 5 years with compound interest.

You're reporting an error for "BMF – Nov 2020 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets"

FR – NOV 2016 – L2 – Q6b – Leases (IFRS 16)

Calculation of present value of lease payments and determination of lease type for equipment leasing arrangement.

You're reporting an error for "FR – NOV 2016 – L2 – Q6b – Leases (IFRS 16)"

QTB – May 2017 – L1 – SB – Q3a – Mathematics

Determine the annual savings required to accumulate a future sum under annuity terms.

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QTB – Nov 2015 – L1 – SA – Q18 – Mathematics of Business Finance

This question identifies the term used to describe the process of calculating present value from future value.

You're reporting an error for "QTB – Nov 2015 – L1 – SA – Q18 – Mathematics of Business Finance"

QTB – May 2015 – L1 – SA – Q4 – Operations Research

Understanding when a business venture is considered worthwhile.

You're reporting an error for "QTB – May 2015 – L1 – SA – Q4 – Operations Research"

QTB – May 2015 – L1 – SA – Q1 – Mathematics

Calculating how long it takes for N500 to appreciate to N10,000 at 5% continuous interest.

You're reporting an error for "QTB – May 2015 – L1 – SA – Q1 – Mathematics"

BMF – May 2021 – L1 – SA – Q17 – Investment Decisions

Calculates the present value of N120,000 received two years from now at a time preference rate of 6.5%.

You're reporting an error for "BMF – May 2021 – L1 – SA – Q17 – Investment Decisions"

BMF – Nov 2023 – L1 – SA – Q5 – Investment Decisions

Calculate the present value of a future amount discounted at 12%.

You're reporting an error for "BMF – Nov 2023 – L1 – SA – Q5 – Investment Decisions"

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