If You Want to Know the Present Value of a Future

question 197

Multiple Choice

If you want to know the present value of a future payment received in one year, what formula can you use?

• A)Present value equals future payment times the current market rate of interest.
• B)Present value equals future payment divided by one plus the rate of interest.
• C)Present value equals one plus the rate of interest in decimals divided by future payment.
• D)Present value equals future payments times one plus the rate of interest.

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Definitions:

Variable Cost

A cost that varies in direct proportion to changes in the level of production or sales volume, such as materials and labor used in production.

Idle Capacity

Resources available for use that are not currently being utilized in the production process.

Minimum Acceptable Price

The lowest price at which a seller agrees to sell a product or service, often determined by costs or market conditions.

Excess Capacity

The additional production capability that a business can utilize without incurring additional fixed costs, often seen as an opportunity for growth.