Ed Sloan Wants to Withdraw $20,000 (Including Principal) from an Investment

question 11

Multiple Choice

Ed Sloan wants to withdraw $20,000 (including principal) from an investment fund at the end of each year for five years.How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually?

• A)$20,000 times the future value of a 5-year, 10% ordinary annuity of 1.
• B)$20,000 divided by the future value of a 5-year, 10% ordinary annuity of 1.
• C)$20,000 times the present value of a 5-year, 10% ordinary annuity of 1.
• D)$20,000 divided by the present value of a 5-year, 10% ordinary annuity of 1.

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Definitions:

Variable Costs

Costs that change in proportion to the level of production or business activity.

Overhead Efficiency Variance

A measure used in cost accounting to analyze the difference between the budgeted overhead costs and the actual overhead costs based on efficient use of resources.

Actual Outputs

The real, measurable production or work results achieved by a company or an individual, often compared to planned or expected outputs.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels, allowing for more accurate financial planning.