Answer: $38,664
Explanation:
To solve this we shall use the Present Value of an Annuity Formula because the cost is the present value of all the payments.
The formula is as follows,
PV of an Annuity = C [ (1 – (1+i)^-n) / i ]
Where,
C is the cash flow per period
i is the rate of interest
n is the frequency of payments
They'll be paying twice a year for 4 years so n = 8
Since it is semi annually, the rate should be 8%/2, = 4%
Calculating we have,
= 5,000 ( 1 - ( 1 + 4%) ^-8 ) / 4%)
=$ 33,663.72
Then we add the $5,000 on purchase day to get,
= 5,000 + 33,663.72
= 38,663.72
= $38,664
The equipment reported on the balance sheet as of the purchase date is closest to $38,664
