Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which of the following processes can be used to calculate the future value for multiple cash flows?

Compounding each cash flow to the future date and summing the results

Discounting each cash flow to the present and adding them together

Subtracting each cash flow from the initial investment

Averaging all cash flows and multiplying by the number of periods

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Verified step by step guidance

Understand the concept of future value: Future value is the value of a cash flow or series of cash flows at a specific date in the future, calculated using a compounding process.

Recognize that compounding involves applying the formula for future value to each individual cash flow. The formula for future value is: FV = PV × (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods.

Apply the compounding formula to each cash flow individually to calculate its future value at the desired future date. This ensures that each cash flow is adjusted for the time value of money.

Sum the future values of all individual cash flows to determine the total future value of the series of cash flows. This step combines the results of the compounding process for each cash flow.

Understand why other options are incorrect: Discounting cash flows to the present calculates present value, not future value. Subtracting cash flows from the initial investment does not account for the time value of money. Averaging cash flows and multiplying by the number of periods does not accurately calculate future value.