You Are Comparing Two Annuities with Equal Present Values

question 113

Multiple Choice

You are comparing two annuities with equal present values. The applicable discount rate is 7.5%. One annuity pays $5,000 on the first day of each year for twenty years. How much does the second
Annuity pay each year for twenty years if it pays at the end of each year?

• A) $4,651
• B) $5,075
• C) $5,000
• D) $5,375
• E) $5,405

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Definitions:

Allocation Base

A criterion or standard used to distribute overhead costs among various products, services, or departments within a business.

Departmental Overhead Rate

The rate at which indirect costs are allocated to products or services based on department-specific activities.

Direct Labor Hours

The total hours worked by employees that can be directly attributed to the production of goods or services.

Mixing Department

A segment in the manufacturing process where various ingredients or components are combined to produce a final product.