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alekssr [168]
3 years ago
8

January 1 of this year, a Company completed the following transactions (assume a 9% annual interest rate):

Business
1 answer:
Stells [14]3 years ago
3 0

Answer:

The cost of the truck that should be recorded at the time of purchase is $46,639

Paying installment is the best option

Explanation:

In order to Calculate the cost of the truck that should be recorded at the time of purchase we need find out present value of future amount of 60,400 with the following formula:

PV=FV/(1+i)^n

FV = Future value

i = interest rate

n = No of years

By applying the formula = 60,400/(1+.09)^3

PV= $46,639

Therefore, $46,639 should be recorded as a cost of truck.

Paying installment is better option than paying lump sum amount of $28,400 as present value of installment method ($26,322 as per below table) is less than immediate payment amount.

PV of installment method

Year          installment method          PV Factor            PV

1                        10,400                             0.917              9,537

2                       10,400                             0.842             8,757

3                       10,400                             0.772             8,029

                                                                 Total              26,322

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