A Bank Is Negotiating a Loan

question 14

Multiple Choice

A bank is negotiating a loan. The loan can either be paid off as a lump sum of $80,000 at the end of four years, or as equal annual payments at the end of each of the next four years. If the interest rate on the loan is 6%, what annual payments should be made so that both forms of payment are equivalent?

• A) $14,630
• B) $18,287
• C) $25,602
• D) $29,259

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Definitions:

Static Planning Budget

A budget for a specific amount of sales or production that does not change as volume changes.

Activity Variance

The difference between the planned activity and the actual activity in terms of costs or hours.

Flexible Budget

A budget that adjusts or flexes with changes in the volume or activity level, allowing better analysis and control of costs.

Actual Costs

The genuine expenses incurred in the production of goods or delivery of services, measured after they occur.