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Jenks Company Financed the Purchase of a Machine by Making

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Jenks Company financed the purchase of a machine by making payments of $20,000 at the end of each of five years. The appropriate rate of interest was 8%. The future value of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8% is 3.99271. What was the cost of the machine to Jenks?


Definitions:

Extended Warranty

An additional warranty that extends beyond the original manufacturer's warranty, typically for an extra fee.

Product Price

The cost at which a particular good or service is sold to customers.

Warranty Purchasers

Individuals or entities who buy a warranty, typically an agreement for repair or replacement of a product, should it fail within a specified period.

Adverse Selection

A situation in which asymmetric information leads to the selection of undesirable alternatives in transactions.

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