The Present Value of Money Is the Principal $P$ You Need to Invest Today So That It Will Grow

question 50

Multiple Choice

The present value of money is the principal $P$ you need to invest today so that it will grow to an amount $A$ at the end of specified time. The present value formula $P = A \left( 1 + \frac { r } { n } \right) ^ { - n t }$ is obtained by solving the compound interest formula $A = P \left( 1 + \frac { r } { n } \right) ^ { n t }$ for $P$ . Recall that $t$ is the number of years, $r$ is the interest rate per year, and $n$ is the number of compoundings per year. find the present value of amount $A$ invested at rate $r$ for $t$ years, compounded $n$ times per year. $A = \$ 1,000,000 , r = 8 \% , t = 20 \text { years }, n = 2$

• A) \(P \approx \$ 108,289.04\)
• B) \(P \approx \$ 208,289.04\)
• C) \(P \approx \$ 308,289.04\)
• D) \(P \approx \$ 20,289.04\)
• E) \(P \approx \$ 1008,289.04\)

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Definitions:

Underapplied Overhead

A scenario where the estimated costs for manufacturing overhead are lower than the overhead costs that were actually encountered.

Predetermined Overhead Rate

An estimated charge per labor hour or machine hour used to allocate overhead costs to products or services.

Direct Labor Cost

The total expense incurred by a company for the wages of workers who are directly involved in the manufacturing or production process.

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to individual products or job orders, based on a certain activity base.