A Company Enters into an Agreement to Make 5 Annual

question 88

Short Answer

A company enters into an agreement to make 5 annual year-end payments of $3,000 each, starting one year from now. The annual interest rate is 6%. The present value of an annuity factor for 5 periods at 6% is 4.2124. What is the present value of these five future payments?

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Definitions:

Business Segments

Portions of a company that can be separately identified by the products they offer or the regions they operate in, for financial reporting purposes.

Contribution Margin

The gap between the revenue from sales of a product and its variable expenses, demonstrating the extent to which it aids in covering constant costs and producing earnings.

Segment Margin

The amount of profit or loss generated by a specific segment of a business, often used to assess the profitability of different parts of a business.

Break-Even Sales

The amount of revenue required to cover the total fixed and variable costs of a business, indicating the point at which a business neither makes a profit nor incurs a loss.