Nimbus Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay $30,000 per year for ten years. The plant assets should be valued at
A) $300,000.
B) $300,000 plus imputed interest.
C) present value of $30,000 annuity for ten years at an imputed interest rate.
D) future value of $30,000 annuity for ten years at an imputed interest rate.

Question

Quizplus · Accepted Answer

The value of the plant assets should be the present value of the $30,000 annuity for ten years at an imputed interest rate, since that is the amount that will actually be paid for them over time. This takes into account the time value of money, which would not be reflected in a simple $300,000 valuation.