I have arrived at the answers for the questions below but I am not entirely sure if they are correct. The math works out but these questions appear to be trick questions because they list a lot of irrelavant information and i am not confident on my answers. can anyone help verify and confirm?
Use the following 8% interest factors
Present Value ofFuture Value of
Ordinary AnnuityOrdinary Annuity
What amount should be recorded as the cost of a machine purchased December 31, 2006, which is to be financed by making 8 annual payments of $6,000 each beginning December 31, 2007? The applicable interest rate is 8%.
ANS: I simply calculated the
present value of an ordinary annuity = R x (PVF-OA at 8 periods, 8 %)
= 6000 x 5.7466
So i think d) is the answer. However, I have no idea why they list amounts for 7 and 9 periods and the Future value of Ordinary Annuity.
Find the present value of an investment in plant and equipment if it is expected to provide annual earnings of $21,000 for 15 years and to have a resale value of $40,000 at the end of that period. Assume a 10% rate and earnings at year end. The present value of 1 at 10% for 15 periods is .23939. The present value of an ordinary annuity at 10% for 15 periods is 7.60608. The future value of 1 at 10% for 15 periods is 4.17725.
Again, I am not sure what information i should be using... but i simply used the present value equation with R = 21,000.
present value = R x (PVF-OA, at 15 periods @ 10%)
= 21,000 x 7.60608
= a) 159,728
However, I am curious as to why this problem gives us a resale value of 40,000. Does that play into the factor of solving this problem???