AICPA CPA-Business Exam - Topic 1 Question 115 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 115
Topic #: 1

[All CPA-Business Questions]

Para Co. is reviewing the following data relating to an energy saving investment proposal:

What would be the annual savings needed to make the investment realize a 12% yield?

A$8,189

B$11,111

C$12,306

D$13,889

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. The annual savings needed to make the investment realize a 12% yield is where the present value of the cash savings/inflows equals the present value of the net cash outflows. Use algebra to calculate the annual savings, as follows:

Choice 'a' is incorrect. The annual savings needed to make the investment realize a 12% yield is where the present value of the cash savings/inflows equal the present value of the net cash outflows.

Choice 'b' is incorrect. Subtract the present value of $10,000 due in 5 years at 12%, or $10,000 .57 = $5,700. Don't subtract the entire $10,000.

Choice 'd' is incorrect. Subtract the present value of the $10,000 residual value from the $50,000 cost.

by Ellsworth at Jul 29, 2025, 08:12 PM

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Lavelle

2 months ago

Definitely $13,889, no doubt about it.

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Sommer

2 months ago

Surprised that the savings needed is so high!

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Hershel

2 months ago

Looks like $11,111 is the right answer for a 12% yield.

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Patti

3 months ago

I think it's actually $12,306. That seems more accurate.

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Lemuel

3 months ago

Just did the math, and $8,189 seems way too low!

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Micaela

3 months ago

I feel like $11,111 could be the right answer, but I need to double-check my calculations before I commit to it.

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Diane

3 months ago

I'm a bit unsure about the exact formula to use for this. Should we be using the annuity formula or something else?

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Lashaunda

4 months ago

I remember a similar question where we had to determine the cash flows for a different yield. I hope I can apply that here.

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Louvenia

4 months ago

I think we need to calculate the present value of the investment and then find the annual savings needed for a 12% yield.

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Mammie

4 months ago

No problem, I've got this. Time value of money calculations are my specialty. I'll work through this step-by-step and nail the solution.

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Leonida

4 months ago

Whoa, this is a tricky one. I'm not totally confident in my ability to solve this type of problem. Maybe I should review some examples first before attempting it.

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Beckie

4 months ago

Okay, I think I've got this. I just need to plug the given information into the present value formula and solve for the annual savings. Should be pretty simple.

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Yen

4 months ago

Hmm, I'm a bit unsure about this one. I'll need to review the time value of money concepts and make sure I understand how to apply them correctly.

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Lemuel

5 months ago

This looks like a straightforward time value of money problem. I'll need to use the present value formula to find the annual savings needed to achieve a 12% yield.

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