Lora Corp.is going to receive $10,000 a year at the end of each of the next five years from its insurer to meet the training cost.Using a discount rate of 14%,the present value of the receipts can be stated as ________.

Question

Quizplus · Accepted Answer

Since Lora Corp. is going to receive equal payments each year for the next five years, we need to use the annuity PV factor to determine the present value of the receipts. The correct formula is PV = Annuity PV factor x Annual Payment. Therefore, the correct answer is PV = $10,000 x Annuity PV factor, i = 14%, n = 5. Choice A and D are incorrect because they use the annuity FV factor and FV factor, respectively, which are not appropriate for this situation. Choice B is incorrect because it uses the PV factor, which does not account for the fact that Lora Corp. will receive multiple payments over time.

Lora CorpIs Going to Receive $10,000 a Year at the End