FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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A company plans on purchasing a new piece of equipment in six years. The equipment is expected to cost $200,000. In planning for this purchase, the company will deposit an amount of money into an investment account earning 8% compounded annually. Using an 8% interest rate, the implied annual interest is $200,000 x 0.08 = $16,000.
The following information is given:
- Assuming an annual interest rate of 8% for six years is appropriate, the present value of the deposit is $200,000 x 0.63017 = $126,034.
- Assuming an annual interest rate of 8% for eight years is appropriate, the present value of the deposit is $200,000 x 0.54027 = $108,054.
- Assuming an annual interest rate of 6% for eight years is appropriate, the present value of the deposit is $200,000 x 0.62741 = $125,482.
How much does this company need to deposit today?
- $108,054
- $126,034
- $125,482
- $104,000
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