Alice Says That the Present Value of $700 to Be

question 341

Multiple Choice

Alice says that the present value of $700 to be received one year from today if the interest rate is 6 percent is less than the present value of $700 to be received two years from today if the interest rate is 3 percent. Beth says that $700 saved for one year at 6 percent interest has a smaller future value than $700 saved for two years at 3 percent interest.

• A)Both Alice and Beth are correct.
• B)Both Alice and Beth are incorrect.
• C)Only Alice is correct.
• D)Only Beth is correct.

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Definitions:

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that remain constant regardless of the level of production, such as property taxes on factory buildings or salaries of production supervisors.

Deferred

Costs or revenues that are recognized at a future date rather than when initially incurred or received.

Released

In a manufacturing or production context, this term refers to products or goods that have been completed and are ready to be shipped or sold.

Inventories

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.