Hazel Company has just purchased equipment that requires annual payments of $40,000 to be paid at the end of each of the next four years.The appropriate discount rate is 15%.What is the present value of the payments?

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the discount rate, and n is the number of periods. Plugging in the given values (PMT = $40,000, r = 0.15, n = 4), we get PV = $40,000 × [(1 - (1 + 0.15)^-4) / 0.15] ≈ $114,199.

Hazel Company Has Just Purchased Equipment That Requires Annual Payments