Asked by Hannah Emmett on Jul 04, 2024
Verified
On January 1, 2010, Steelton Company completed arrangements to purchase a new piece of equipment.The agreement calls for equal annual payments on January 1 of each year for six years.The first payment of $7, 500 is to be made on January 1, 2010.The implied interest rate is 12%.
Required:
Calculate the cost of the equipment to Steelton Company.
Implied Interest Rate
The calculated interest rate derived from comparing the present value of payments or receipts to the original principal amount, often used in lease transactions.
Equal Annual Payments
Regular payments of the same amount made annually, often used in loans or annuities.
Equipment Cost
Refers to the total cost incurred to acquire and prepare an item of equipment for its intended use, including the purchase price, shipping fees, installation costs, and any other expenditures necessary to bring the equipment to a functional state.
- Acquire knowledge of the core idea of present value and learn to determine it for single amounts and annuities.
- Determine the unknown variables in equations of time value of money that include both single amounts and annuity payments.
Verified Answer
AC
ARNAB CHOWDHURYJul 06, 2024
Final Answer :
Present value of an annuity due, table approach: Pd=C( Factor for Pdn=6−1.i=12%)P_{d}=C\left(\text { Factor for } P_{d n=6-1 . i=12 \%}\right)Pd=C( Factor for Pdn=6−1.i=12%)
Table factor of n−1 rents: Table factor for 5 rents 3.604776+1.000000 Converted table factor 4.604776Pd=$7,500(4.604776)−$34,535.82\begin{array}{lr}\text { Table factor of } n-1 \text { rents: }\\\text { Table factor for } 5 \text { rents }&3.604776\\&+1.000000\\\text { Converted table factor }&4.604776\\\\P_{d}&=\$7,500(4.604776)\\&-\$34,535.82\end{array} Table factor of n−1 rents: Table factor for 5 rents Converted table factor Pd3.604776+1.0000004.604776=$7,500(4.604776)−$34,535.82
Table factor of n−1 rents: Table factor for 5 rents 3.604776+1.000000 Converted table factor 4.604776Pd=$7,500(4.604776)−$34,535.82\begin{array}{lr}\text { Table factor of } n-1 \text { rents: }\\\text { Table factor for } 5 \text { rents }&3.604776\\&+1.000000\\\text { Converted table factor }&4.604776\\\\P_{d}&=\$7,500(4.604776)\\&-\$34,535.82\end{array} Table factor of n−1 rents: Table factor for 5 rents Converted table factor Pd3.604776+1.0000004.604776=$7,500(4.604776)−$34,535.82
Learning Objectives
- Acquire knowledge of the core idea of present value and learn to determine it for single amounts and annuities.
- Determine the unknown variables in equations of time value of money that include both single amounts and annuity payments.