Ines Corporation bought a new machine and agreed to pay for it in equal annual instalments of $10,000 at the end of each of the next four years.The payments include both interest and principal.The rate of interest for this transaction is 8%.The amount that Ines should record the cost of the machine at is closest to?

Question

Quizplus · Accepted Answer

The cost of the machine should be recorded at the present value of the payments. Using the formula for the present value of an annuity, with payments of $10,000 annually for 4 years at an 8% interest rate, the present value (cost of the machine) is closest to $33,121.

Ines Corporation Bought a New Machine and Agreed to Pay