A machine is purchased by making payments of $5,000 at the beginning of each of the next five years.The interest rate was 10%.The future value of an ordinary annuity of 1 for five periods is 6.10510.The present value of an ordinary annuity of 1 for five periods is 3.79079.What was the cost of the machine?
A)$33,578
B)$30,526
C)$20,849
D)$18,954

Question

Quizplus · Accepted Answer

We need to use the formula for the present value of an annuity due.

PV = PMT x ((1 - (1 + r)^-n)/r) x (1 + r)

where PV is the present value, PMT is the payment amount, r is the interest rate, and n is the number of periods.

Using the given values, we have:

PV = $5,000 x ((1 - (1 + 0.1)^-5)/0.1) x (1 + 0.1)
PV = $5,000 x 3.79079 x 1.1
PV = $20,849

Therefore, the cost of the machine was $20,849. So, the answer is (C).

A Machine Is Purchased by Making Payments of $5,000 at the Beginning