### Present Value of an AnnuityDetermine the present value of $110,000 to be received at the end of each of 4 years, using an interest rate of 7%, compounded annually, as follows:#### a. By successive computations, using the present value of $1 table in [Exhibit 5](#). Round to the nearest whole dollar. - **First year:** $_________ - **Second Year:** $_________ - **Third Year:** $_________ - **Fourth Year:** $_________ **Total present value:** $_________#### b. By using the present value of an annuity of $1 table in [Exhibit 7](#). Round to the nearest whole dollar. - $_________#### c. Why is the present value of the four $110,000 cash receipts less than the $440,000 to be received in the future? - The present value is less due to the **compounding of interest** over the 4 years.---**Explanation of Graphs or Diagrams:**There are no specific graphs or diagrams in the provided text. The text mainly includes blank spaces for calculations related to the present value of an annuity. The calculations follow a step-by-step approach:1. First, individual present values for each of the four years are computed using the present value of $1 table.2. Then, the total present value is summarized.3. An alternative method using the present value of an annuity of $1 table is also presented.4. Finally, a conceptual explanation as to why the total present value is less than the nominal future cash receipts is provided, noting the effect of compound interest.

Present value of an annuity Determine the present value of $110,000 to be received at the end of each of 4 years, using an interest rate of 7%, compounded annually, as follows: a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year Second Year Third Year Fourth Year Total present value b. By using the present value of an annuity of $1 table in Exhibit 7. Round to the nearest whole dollar. c. Why is the present value of the four $110,000 cash receipts less than the $440,000 to be received in the future? The present value is less due to the compounding of interest ✓over the 4 years.

Present value of an annuity Determine the present value of $110,000 to be received at the end of each of 4 years, using an interest rate of 7%, compounded annually, as follows: a. By successive computations, using the present value of $1 table in Exhibit 5. Round to the nearest whole dollar. First year Second Year Third Year Fourth Year Total present value b. By using the present value of an annuity of $1 table in Exhibit 7. Round to the nearest whole dollar. c. Why is the present value of the four $110,000 cash receipts less than the $440,000 to be received in the future? The present value is less due to the compounding of interest ✓over the 4 years.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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