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Will Smith will receive $80,000 on December 31, 2019 (5

Intermediate Accounting | 15th Edition | ISBN: 9781118147290 | Authors: Donald E. Kieso ISBN: 9781118147290 164

Solution for problem 8 Chapter 6

Intermediate Accounting | 15th Edition

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Intermediate Accounting | 15th Edition | ISBN: 9781118147290 | Authors: Donald E. Kieso

Intermediate Accounting | 15th Edition

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Problem 8

Will Smith will receive $80,000 on December 31, 2019 (5 years from now), from a trust fund established by his father. Assuming the appropriate interest rate for discounting is 12% (compounded semiannually), what is the present value of this amount today?

Step-by-Step Solution:
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Accounting Ch. 7 Operating leverage = CM / profit or net income BE units = fixed costs / Unit CM CM ratio = CM / sales CM = sales – variable costs Net income = fixed cost – CM BE sales = fixed costs / CM ratio Margin safety = sales – break even sales Relevant costs  Occurs in future  Differs between decisions Irrelevant costs  Sunk costs- already paid  Costs that are always the same Special Order Decisions  1 time order  accept special order o profitable o has capacity o long term relationship  cautions o economic consideration o is it worth it Make or buy decision  better off doing it themselves or paying people to do it  more profitable to outsource 

Step 2 of 3

Chapter 6, Problem 8 is Solved
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Textbook: Intermediate Accounting
Edition: 15
Author: Donald E. Kieso
ISBN: 9781118147290

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Will Smith will receive $80,000 on December 31, 2019 (5