If a Company Buys a $700 Machine on Credit, This

question 141

Multiple Choice

If a company buys a $700 machine on credit, this transaction will affect the

• A) income statement and retained earnings statement only.
• B) income statement only.
• C) income statement, retained earnings statement, and balance sheet.
• D) balance sheet only.

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Definitions:

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Internal Rate of Return

A financial metric used to estimate the profitability of potential investments by calculating the rate of return at which the net present value of costs (cash outflows) equals the net present value of benefits (cash inflows).

Average Rate of Return

A financial ratio used to measure the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.

Cash Payback Period

The time period required for the cash inflows from a capital investment project to cover the initial cash outlay.