Jenks Company financed the purchase of a machine by making payments of $20,000 at the end of each of five years. The appropriate rate of interest was 8%. The future value of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8% is 3.99271. What was the cost of the machine to Jenks?
A) $29,588
B) $79,854
C) $100,000
D) $117,334

Question

Quizplus · Accepted Answer

The cost of the machine is the present value of the annuity payments. The present value of an ordinary annuity for five periods at 8% is 3.99271. Therefore, the cost is $20,000 * 3.99271 = $79,854.

Jenks Company Financed the Purchase of a Machine by Making