Which of the Following Is the Correct Way to Compute

question 47

Multiple Choice

Which of the following is the correct way to compute the future value of $X that earns r percent interest for N years?

• A)$X(1 + rN)^N
• B)$X(1 + r)^N
• C)$X(1 + rN)
• D)$X(1 + r/N)N

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Definitions:

Incremental Borrowing

Refers to the additional interest or costs a company incurs to obtain extra funds or increase its level of debt.

Commercial Substance

The concept refers to a situation where the risk, timing, or amount of future cash flows of a business changes as a result of a transaction.

Straight-Line Method

A method of calculating the depreciation of an asset, which spreads the cost evenly over its useful life.

Depreciation Expense

The portion of the cost of a fixed asset that is recognized as an expense in the income statement over its useful life.