Which of the Following Transactions Would Best Use the Present

question 122

Multiple Choice

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

• A) Fernetti, Inc. rents a truck for 5 years with annual rental payments of $20,000 to be made at the beginning of each year.
• B) Edmiston 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:

Tax Rate

The amount of money, in terms of a percentage, that the government collects as tax from enterprises or persons.

Cost Of Debt

The return that lenders require on the firm’s debt.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset evenly across its useful life.

Resale Value

The estimated amount for which an asset can be sold at the end of its useful life, considering factors like market demand and the asset's remaining utility.