The Following Present Value Factors Are Provided for Use in This

question 102

Multiple Choice

The following present value factors are provided for use in this problem. Cliff Co.wants to purchase a machine for $40,000,but needs to earn an 8% return.The expected year-end net cash flows are $12,000 in each of the first three years,and $16,000 in the fourth year.What is the machine's net present value (round to the nearest whole dollar) ?

• A)$(9,075).
• B)$2,685.
• C)$42,685.
• D)$(28,240).
• E)$52,000.

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Definitions:

Service Cost

The actuarial present value of benefits earned by employees in the current period under a defined benefit plan, included in pension expense.

Interest Cost

The cost incurred by an entity for borrowing funds, typically reflected as an expense in the income statement.

Pension Expense

The annual cost recognized by an employer for maintaining a retirement plan for its employees.

Actuarial Assumptions

Estimates used to calculate the present and future financial obligations of pension plans and insurance policies, often involving life expectancy and interest rates.