DrJWants to Buy an IBM Personal Computer Which Will Cost

question 24

Multiple Choice

Dr.J.wants to buy an IBM personal computer which will cost $2,788 four years from today.He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed.He can earn a 7% annual return.How much should he set aside?

• A) $697.00
• B) $627.94
• C) $823.15
• D) $531.81

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Definitions:

Variable Cost Ratio

The proportion of variable costs to total sales, indicating how variable costs change with sales levels.

Bond Issue

The process by which a borrower issues bonds to raise funds from investors willing to lend them money for a certain period.

Operating Leverage (DOL)

Operating leverage measures how revenue growth translates into growth in operating income. It is a measure of how sensitive the operating income is to the change in revenues.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent or salaries.