The Solution to This Problem Requires Time Value of Money

question 20

Multiple Choice

The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. A company will have to pay a $50,000 liability in 4 years. How much must be deposited now into a bank account earning 8% compounded semiannually to fully fund the future payment?

• A) $35,500
• B) $36,550
• C) $36,523
• D) $34,000

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Definitions:

Base Year

A specific year against which economic or financial data is compared over a period of time.

Sales

The exchange of goods or services for money, measuring the primary revenue-generating activities of a business.

Common-size Percent

A technique used in financial analysis where all line items are expressed as a percentage of a common base figure, facilitating comparison between financial periods and companies.

Analysis Amount

The specific value being examined or analyzed in financial or statistical evaluations.