The Sparks Sailboat Company has just acquired new manufacturing equipment. No down payment was made, but four year-end payments of $2400 will be required to pay for the machine. If 8% is the appropriate rate, at what amount should Sparks Sailboat Company record the new equipment on its books? (PV annuity at 8% for four years is 3.312, five years is 3.993)

Question

Quizplus · Accepted Answer

To find the present value of the four year-end payments of $2400, we need to use the PV of an annuity formula. 
PV = Payment x PV annuity factor 
PV = $2400 x 3.312 
PV = $7949.

Therefore, the amount that Sparks Sailboat Company should record the new equipment on its books is $7949.

The Sparks Sailboat Company Has Just Acquired New Manufacturing Equipment