Which of the Following Transactions Would Best Use the Present

question 32

Multiple Choice

Which of the following transactions would best use the present value of an annuity due of 1 table?

• A)Diamond Bar, Inc.rents a truck for 5 years with annual rental payments of $20,000 to be made at the beginning of each year.
• B)Michener Co.rents a warehouse for 7 years with annual rental payments of $120,000 to be made at the end of each year.
• C)Durant, Inc.borrows $20,000 and has agreed to pay back the principal plus interest in three years.
• D)Babbitt, Inc.wants to deposit a lump sum to accumulate $50,000 for the construction of a new parking lot in 4 years.

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Definitions:

Common Dividends

Payments made to shareholders from a company's earnings, reflecting the ownership interest in the corporation's profits.

Preemptive Rights

The right of existing shareholders to buy new shares before they are offered to the public, to maintain their proportionate ownership in the company.

Common Stockholders

These are investors who own shares of a company's common stock, granting them voting rights and a portion of the company's profits through dividends.

Hybrid Security

A financial instrument that combines characteristics of both equity and debt securities, offering a blend of risk and return features.