ERROR, MATERIALITY, AND PRESENT VALUE. Consider the present value of a single future payment of $100,000 to be made in n years.

REQUIRED:

1. Prepare a graph with present value on the vertical axis (ranging from zero to

$100,000) and n on the horizontal axis (ranging from zero to 30). Plot four curves on the graph—one showing the relationship between the present value of the

$100,000 future payment and n when the interest rate is 5%, a second showing the relationship when the interest rate is 10%, a third showing the relationship when the interest rate is 15%, and a fourth showing the relationship when the interest rate is 20%.

2. What do you conclude about the effect of increasing distance to future payments (n)

and increasing interest rates (i) on the present value of a future cash flow?

3. What do you conclude about the contribution of distant future cash flow requirements to the present value of related liabilities? Does your conclusion affect the way you think about the problem of estimating distant future cash flows? 4, Why are many current liabilities carried at face amount rather than present value?