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The Strug Company purchased office furniture and equipment for $8,600 and agreed to pay for the purchase by making five annual installment payments beginning immediately. The installment payments include interest at 8%. What is the required annual installment payment? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
a. $1,720
b. $2,154
c. $1,994
d. $1,466

Answer :

Answer:

Annual payments = $2154

so correct option is b. $2,154

Explanation:

given data

present value = $8600

installment n = 5

rate = 8%

to find out

What is the required annual installment payment

solution

we know that present value is

Present value = Annual payments × Present value of annuity factor at 8% and 5 installment      .........................1

so Present value of annuity factor is

Present value of annuity factor = [tex]\frac{1 - (1+r)^{-n}}{r}[/tex]

here r is rate and n is installment

so put here value

Present value of annuity factor = [tex]\frac{1 - (1+0.08)^{-5}}{0.08}[/tex]

Present value of annuity factor =  3.9927

so from equation 1

$8600=Annual payments × 3.9927

Annual payments = $2154

so correct option is b. $2,154

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