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Ronan Industries needed to buy a piece of equipment, so it was financed for five years...

Ronan Industries needed to buy a piece of equipment, so it was financed for five years with payments of $20,000 at the end of each year. The rate of interest was 8% with the future value of 1 for five periods at 8% was 1.46933. The present value of the ordinary annuity for these same five periods is 3.99271, and the future value of an ordinary annuity is 5.8666. The machine will cost Ronan Industries a total of

  • A : $29,588.

  • B : $117,334.

  • C : $100,000.

  • D : $79,854.

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Answer #1

Annual payment = $20,000

Interest rate (i) = 8%

Time period (n) = 5 year

Present value of ordinary annuity (8%, 5) = 3.99271

Present value of future payment = Annual payment x Present value of ordinary annuity (8%, 5)

= 20,000 x 3.99271

= $79,854

Hence , the machine will cost Ronan Industries a total of = $79,854

Correct option is (D)

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