The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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Barton Company has just purchased a machine with a cost of $100,000 and signed a note agreeing to pay the manufacturer equal annual amounts of $17,400.If the current rate of interest is 8%,how many equal annual payments will be made?
A)6
B)8
C)10
D)12

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. 
-
Barton Company has just purchased a machine with a cost of $100,000 and signed a note agreeing to pay the manufacturer equal annual amounts of $17,400.If the current rate of interest is 8%,how many equal annual payments will be made?
A)6
B)8
C)10
D)12

Quizplus · Accepted Answer

To solve this problem, you would typically use an annuity table or the present value of an annuity formula. The formula for the present value of an annuity is PV = PMT * [(1 - (1 + r)^-n) / r], where PV is the present value ($100,000 in this case), PMT is the annual payment ($17,400), r is the interest rate (8% or 0.08), and n is the number of periods (which we are solving for). However, without performing the calculation directly and instead referring to typical annuity tables (Tables 9-1 through 9-4 as mentioned), you would look for the factor that corresponds to an 8% interest rate and results in a present value factor close to the ratio of $100,000 / $17,400. This approach typically leads to identifying the number of periods (years) directly from the table. Given the structure of standard annuity tables and the information provided, the correct answer aligns with what would be found for an 8% interest rate over a period that results in the present value of $100,000 when the annual payment is $17,400, which corresponds to 8 years in typical financial tables.

The Solution to This Problem Requires Time Value of Money