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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.)
Suggested Answer: A, D
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34 comments · newest first
GI
Gilma
11 months ago
How does the discount rate affect these calculations?
JI
Jimmie
11 months ago
Wait, can you really just add like that?
DE
Deane
11 months ago
A and D don't seem right to me.
LE
Leslie
12 months ago
I think C is the right choice too.
SA
Sabine
12 months ago
Option B is definitely valid!
SI
Simona
1 year 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.
SU
Sueann
1 year 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?
JE
Jeannetta
1 year 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.
CE
Cecily
1 year 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.
CR
Cristina
1 year 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.
LA
Laurel
1 year 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.
TR
Trina
1 year 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.
LE
Lettie
1 year 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.
TH
Thad
1 year 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.
MA
Maryln
2 years 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.
LO
Long
2 years ago
The present value needs to be calculated separately for each payment.
HA
Hailey
2 years ago
Option E is trying to be sneaky, but I don't think it's correct.
TA
Tamala
2 years 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
BA
Barb
2 years ago
A) $5,000 + ($5,000 x 3.605)
MO
Monte
2 years ago
I'm not sure, but I think option C could also be valid because it divides each rental payment by the discount rate.
NI
Nikita
2 years ago
Haha, I'm going to have to do some serious studying before this exam. All these formulas are making my head spin!
NA
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.
WI
Wilbert
2 years ago
A: Yeah, D seems to be a valid option based on that factor.
TA
Tabetha
2 years ago
B: I agree, the annuity factor of 3.605 is important for the calculation.
PA
Patti
2 years ago
A: I think B and D are the valid ways to calculate the present value.
JU
Junita
2 years ago
I agree with Milly, option B is the correct way to calculate the present value of the rental payments.
MI
Milly
2 years ago
I think option B is correct because it calculates the present value of each rental payment using the discount rate.
GR
Gracia
2 years ago
Option B and C look good to me. The present value formula is the way to go here.
CA
Carma
2 years ago
Make sure to discount each future payment back to its present value.
GI
Gilberto
2 years ago
It's important to consider the discount rate when calculating present value.
EL
Eloisa
2 years ago
Using the present value formula is the best approach for this calculation.
HU
Hubert
2 years ago
Yes, the present value formula is definitely the key to solving this calculation.
BR
Brandee
2 years ago
I agree, option B and C are the correct ways to calculate the present value.
SA
Sarina
2 years ago
I agree, option B and C are the correct ways to calculate the present value.