Foley Company financed the purchase of a machine by making payments of $18,000 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 Foley?
A)$26,448
B)$71,869
C)$90,000
D)$105,600

Question

Quizplus · Accepted Answer

Using the formula for the present value of an ordinary annuity:

PV = A[(1 - (1+r)^-n)/r]

Where PV is the present value, A is the annual payment, r is the interest rate per period, and n is the number of periods.

Plugging in the given values:

PV = $18,000[(1 - (1+0.08)^-5)/0.08]
PV = $71,869.34

Therefore, the cost of the machine to Foley was $71,869.34. So the best choice is B.

Foley Company Financed the Purchase of a Machine by Making