9. Ronen Consulting has just realized an accounting error that has resulted in a

Question

9. Ronen Consulting has just realized an accounting error that has resulted in an unfunded liability of $390,000 due in 27 years.

In other words, they will need $390,000 in 27 years. Toni Flanders the company’s CEO, is scrambling to discount the liability to the present to assist in valuing the firm’s stock. If the appropriate discount rate is 7 percent, what is the present value of the liability?_______

8. How many years will it take for $520 to grow to $1,011.12 if its invested at 9 percent compounded annually?

The number of years it will take for $520 to grow to $1,011.12 at 9 percent compounded annually is _______years. (Round to one decimal place)

Explanation / Answer

9. Present Value of liability $ 390,000 at 7% for 27 years = 390,000 / (1.07)27 = $ 62,762.84

8. FV = PV * ( 1 + r )n

1011.12 = 520 * (1.09)n

(1.09)n = 1.944462

n = 7.8 years.

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