Perdue Company has purchased equipment that requires annual payments of $30,000 to be paid at the end of each of the next six years.The appropriate discount rate is 12%.What amount will be used to record the equipment?

Question

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The amount used to record the equipment is the present value of the annuity payments. Using the formula for the present value of an annuity or a financial calculator, the present value of $30,000 paid annually for 6 years at a 12% discount rate is approximately $123,342.

Perdue Company Has Purchased Equipment That Requires Annual Payments of $30,000