Suppose You Are Committed to Owning a $140,000 Ferrari

question 52

Multiple Choice

Suppose you are committed to owning a $140,000 Ferrari.You believe your mutual fund can achieve an annual rate of return of 8 percent and you want to buy the car in 7 years.How much must you invest today to fund this purchase assuming the price of the car remains constant?

• A)$74,208.16
• B)$81,688.66
• C)$87,911.08
• D)$98,019.82
• E)$99,446.60

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Definitions:

Bad Debt Expense

An income statement item reflecting the cost associated with the estimated uncollectible accounts receivable.

Allowance for Doubtful Accounts

An estimate of the amount of accounts receivable that may not be collected, recognized as a contra asset account.

Cash Realizable Value

The net amount of cash expected to be received from receivables, after accounting for allowances for doubtful accounts.

Accounts Receivable

Debts owed by customers to a company for delivered goods or performed services that remain unpaid.