CIMAPRA17-BA2-1 Exam - Topic 2 Question 80 Discussion

Actual exam question for CIMA's CIMAPRA17-BA2-1 exam

Question #: 80
Topic #: 2

A company's management accountant wishes to calculate the present value of the cost of renting a delivery vehicle. There will be five annual rental payments of $5,000, the first of which is due immediately. The company's discount rate is 12%.

Which TWO of the following are valid ways to calculate the present value of the rental payments? (Choose two.)

A$5,000 + ($5,000 x 3.605)

B$5,000 + $5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4

C$5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4+ $5,000/(1.12)5

D$5,000 x 3.605

E$5,000 + ($5,000 x 3.037)

Show Suggested Answer

Suggested Answer: A, D

by Veronique at Sep 17, 2024, 06:24 PM

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Gilma

4 months ago

How does the discount rate affect these calculations?

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Jimmie

4 months ago

Wait, can you really just add like that?

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Deane

4 months ago

A and D don't seem right to me.

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Leslie

4 months ago

I think C is the right choice too.

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Sabine

5 months ago

Option B is definitely valid!

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Simona

5 months ago

I vaguely recall something about using factors for present value calculations. Option E seems like it might be close, but I’m not entirely sure about the multiplier used.

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Sueann

5 months ago

I’m a bit confused about option C. It includes all five payments, but I thought the first payment was immediate and didn’t need discounting?

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Jeannetta

5 months ago

I think option B looks familiar; it breaks down each payment, which is what we did in class. I feel confident about that one.

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Cecily

5 months ago

I remember we practiced calculating present value, but I'm not sure if option A is correct since it seems to miss some of the discounting.

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Cristina

5 months ago

Alright, I think I've got a good handle on this. Options B and C both use the correct formula for a series of equal payments, discounting each one back to the present value. I'm feeling confident about those two approaches.

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Laurel

5 months ago

I'm a little confused by the different formulas presented. I'll need to work through each one step-by-step to make sure I understand how they're calculating the present value. Careful analysis will be important to get this right.

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Trina

5 months ago

I've got this! The key is to recognize that we have a series of five annual payments, with the first one due immediately. Options B and C both correctly discount each payment to its present value using the 12% discount rate.

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Lettie

5 months ago

Hmm, I'm a bit unsure about this one. The question is asking for two valid ways to calculate the present value, but there are a lot of options to choose from. I'll need to review the formulas and double-check my work.

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Thad

6 months ago

Okay, this looks like a present value calculation question. I'll need to think through the formula and the given information carefully to determine the valid approaches.

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Maryln

1 year ago

Option E is trying to be sneaky, but I don't think it's correct. The present value needs to be calculated separately for each payment.

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Long

1 year ago

The present value needs to be calculated separately for each payment.

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Hailey

1 year ago

Option E is trying to be sneaky, but I don't think it's correct.

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Tamala

1 year ago

C) $5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4+ $5,000/(1.12)5

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Barb

1 year ago

A) $5,000 + ($5,000 x 3.605)

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Monte

1 year ago

I'm not sure, but I think option C could also be valid because it divides each rental payment by the discount rate.

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Nikita

1 year ago

Haha, I'm going to have to do some serious studying before this exam. All these formulas are making my head spin!

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Nakisha

2 years ago

I think D is also a valid way to calculate the present value. The annuity factor of 3.605 is the key here.

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Wilbert

1 year ago

A: Yeah, D seems to be a valid option based on that factor.

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Tabetha

1 year ago

B: I agree, the annuity factor of 3.605 is important for the calculation.

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Patti

1 year ago

A: I think B and D are the valid ways to calculate the present value.

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Junita

2 years ago

I agree with Milly, option B is the correct way to calculate the present value of the rental payments.

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Milly

2 years ago

I think option B is correct because it calculates the present value of each rental payment using the discount rate.

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Gracia

2 years ago

Option B and C look good to me. The present value formula is the way to go here.

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Carma

1 year ago

Make sure to discount each future payment back to its present value.

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Gilberto

1 year ago

It's important to consider the discount rate when calculating present value.

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Eloisa

1 year ago

Using the present value formula is the best approach for this calculation.

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Hubert

1 year ago

Yes, the present value formula is definitely the key to solving this calculation.

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Brandee

2 years ago

I agree, option B and C are the correct ways to calculate the present value.

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Sarina

2 years ago

I agree, option B and C are the correct ways to calculate the present value.

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