Aggie Company purchased equipment. The purchase agreement requires Aggie to make
ID: 2447649 • Letter: A
Question
Aggie Company purchased equipment. The purchase agreement requires Aggie to make annual payments of $10,000 at the end of each of the next four years. Aggie Company believes the appropriate discount rate is 12%. What amount should Aggie record as the cost of the equipment, rounded to the nearest dollar? (The cost of the equipment is the present value - that is, the value today - of what Aggie is promising to pay in the future.)
$40,000
$37,534
$30,374
$6,355
a.$40,000
b.$37,534
c.$30,374
d.$6,355
Explanation / Answer
Answer c is correct
annual payments = 10000
discount rate = 12%
Time period = 4 years
From PVIFA tables at 12% for four years = 3.037
= 10000*3.037 = 30370 or 30374.