Joshua Desires to Purchase an Annuity on January 1, 2014

question 35

Multiple Choice

Joshua desires to purchase an annuity on January 1, 2014, that yields him five annual cash flows of $10,000 each, with the first cash flow to be received on January 1, 2017. The interest rate is 10% compounded annually. The cost present value) of the annuity on January 1, 2014, is

• A) $31,328.81.
• B) $34,461.70.
• C) $37,907.87.
• D) $48,684.19.

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Definitions:

Additional Processing Costs

Costs incurred during the manufacturing process that are above the initial expected expenses, often due to added steps or materials required.

Support Departments

Units within an organization that provide essential services or support to the production or primary departments but do not directly engage in the main activity of the business.

Proportional Usage

The allocation of resources, costs, or efforts in relation to the direct usage or benefit obtained from those resources.

Direct Method

A means of reporting cash flows from operating activities that presents specific cash inflows and outflows directly rather than using the indirect method adjustments.