Present Value Tables
Present Value of $1 Present Value of an Annuity of $1

question 104

Multiple Choice

Present Value Tables
Present value of $1 $$\begin{array} { l l l l l l l } \text { Periads } & 4 \% & 6 \% & 8 \% & 10 \% & 12 \% & 14 \% \\1 & 0.962 & 0.943 & 0.926 & 0.909 & 0.893 & 0.877 \\2 & 0.925 & 0.890 & 0.857 & 0.826 & 0.797 & 0.769 \\3 & 0.889 & 0.840 & 0.794 & 0.751 & 0.712 & 0.675 \\4 & 0.855 & 0.792 & 0.735 & 0.683 & 0.636 & 0.592 \\5 & 0.822 & 0.747 & 0.681 & 0.621 & 0.567 & 0.519 \\6 & 0.790 & 0.705 & 0.630 & 0.564 & 0.507 & 0.456 \\7 & 0.760 & 0.665 & 0.583 & 0.513 & 0.452 & 0.400 \\8 & 0.731 & 0.627 & 0.540 & 0.467 & 0.404 & 0.351 \\9 & 0.703 & 0.592 & 0.500 & 0.424 & 0.361 & 0.308 \\10 & 0.676 & 0.558 & 0.463 & 0.386 & 0.322 & 0.270\end{array}$$ Present value of an annuity of $1 $$\begin{array} { l l l l l l l } \text { Periads } & 4 \% & 6 \% & 8 \% & 10 \% & 12 \% & 14 \% \\1 & 0.962 & 0.943 & 0.926 & 0.909 & 0.893 & 0.877 \\2 & 1.886 & 1.833 & 1.783 & 1.736 & 1.690 & 1.647 \\3 & 2.775 & 2.673 & 2.577 & 2.487 & 2.402 & 2.322 \\4 & 3.630 & 3.465 & 3.312 & 3.170 & 3.037 & 2.914 \\5 & 4.452 & 4.212 & 3.993 & 3.791 & 3.605 & 3.433 \\6 & 5.242 & 4.917 & 4.623 & 4.355 & 4.111 & 3.889 \\7 & 6.002 & 5.582 & 5.206 & 4.868 & 4.564 & 4.288 \\8 & 6.733 & 6.210 & 5.747 & 5.335 & 4.968 & 4.639 \\9 & 7.435 & 6.802 & 6.247 & 5.759 & 5.328 & 4.946 \\10 & 8.111 & 7.360 & 6.710 & 6.145 & 5.650 & 5.216\end{array}$$
-Refer to Present Value Tables. Pepper Company is considering an investment that will cost $20,000 initially and return annual cash flows of $10,000 in each of three years. The company requires a minimum rate of return of 8%. What is the present value of the cash inflows?

• A) $5,770
• B) $10,000
• C) $20,000
• D) $25,770

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Definitions:

Prepaid Expense

An expense that is paid for in advance and recorded as an asset until it is actually incurred.

Double-Entry Bookkeeping

An accounting system in which the recording of each transaction affects two or more accounts and the total of the debits is equal to the total of the credits.

Debiting

The process of recording an entry on the left side of the accounting ledger, which increases asset or expense accounts and decreases liability, equity, or revenue accounts.

Crediting

The process of making an entry on the right side of an account in double-entry bookkeeping, indicating an increase in liabilities, equity, or revenue, or a decrease in an asset or expense.