Jenks Company financed the purchase of a machine by paying $24,000 a year for the next five years,with the first payment due one year from today.The purchase cost of the machine is considered to be the present value of those payments.What was the purchase cost of the machine to Jenks assuming a discount rate of 8%?
A)$35,264
B)$95,825
C)$120,000
D)$140,800

Question

Quizplus · Accepted Answer

The purchase cost of the machine is the present value of an annuity. Using the formula for the present value of an annuity, PV = PMT × [(1 - (1 + r)^-n) / r], where PMT = $24,000, r = 0.08, and n = 5, the calculation gives approximately $95,825.

Jenks Company Financed the Purchase of a Machine by Paying