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

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

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

Actual exam question for CIMA's CIMAPRA17-BA2-1 exam
Question #: 80
Topic #: 2
[All CIMAPRA17-BA2-1 Questions]

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.)

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Suggested Answer: A, D

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

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Gilma
8 months ago
How does the discount rate affect these calculations?
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Jimmie
8 months ago
Wait, can you really just add like that?
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Deane
8 months ago
A and D don't seem right to me.
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Leslie
8 months ago
I think C is the right choice too.
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Sabine
9 months ago
Option B is definitely valid!
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Simona
9 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
9 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
9 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
9 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
9 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
9 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
9 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
9 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
10 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
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.
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Long
2 years ago
The present value needs to be calculated separately for each payment.
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Hailey
2 years ago
Option E is trying to be sneaky, but I don't think it's correct.
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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
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Barb
2 years ago
A) $5,000 + ($5,000 x 3.605)
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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.
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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!
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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
2 years ago
A: Yeah, D seems to be a valid option based on that factor.
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Tabetha
2 years ago
B: I agree, the annuity factor of 3.605 is important for the calculation.
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Patti
2 years 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
2 years ago
Make sure to discount each future payment back to its present value.
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Gilberto
2 years ago
It's important to consider the discount rate when calculating present value.
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Eloisa
2 years ago
Using the present value formula is the best approach for this calculation.
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Hubert
2 years 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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