Using the previous table, enter the correct factor for three periods at 5%:Periodic paymentxFactor=Present value$6,000x =$16,338The controller at Ross has determined that the company could save $6,000 per year in engineering costs by purchasing a new machine. The new machine would last 12 years and provide the aforementioned annual monetary benefit throughout its entire life. Assuming the interest rate at which Ross purchases this type of machinery is 9%, what is the maximum amount the company should pay for the machine? $fill in the blank 5aca5ff34fa005f_2 (Hint: This is basically a present value of an ordinary annuity problem as highlighted above.)Assume that the actual cost of the machine is $50,000. Weighing the present value of the benefits against the cost of the machine, should Ross purchase this piece of machinery? Use snippets to answer Present Value: ?The most simple and commonly used method of determining the present value of an ordinary annuity is to multiply the incremental payout by the appropriate rate found on the present value of an ordinary annuity table.+ Present Value of an Ordinary AnnuityTable 2 - Present Value of an Ordinary Annuity of $1 at Compound InterestPeriod5%6%7%8%9%10%11%12%10.9520.9430.9350.9260.9170.9090.9010.8931.8591.8331.8081.7831.7591.7361.7131.69032.7232.6732.6242.5772.5312.4872.4442.4023.5463.4653.3873.3123.2403.1703.1023.0374.3294.2124.1003.9933.8903.7913.6963.6055.0764.9174.7674.6234.4864.3554.2314.11175.7865.5825.3895.2065.0334.8684.7124.5646.4636.2105.9715.7475.5355.3355.1464.9687.1086.8026.5156.2475.9955.7595.5375.328107.7227.3607.0246.7106.4186.1455.8895.650118.3067.8877.4997.1396.8056.4956.2075.938128.8638.3847.9437.5367.1616.8146.4926.194139.3948.8538.3587.9047.4877.1036.7506.424149.8999.2958.7458.2447.7867.3676.9826.6281510.3809.7129.1088.5598.0617.6067.1916.8111610.83810.1069.4478.8518.3137.8247.3796.9741711.27410.4779.7639.1228.5448.0227.5497.1201811.69010.82810.0599.3728.7568.2017.7027.2501912.08511.15810.3369.6048.9508.3657.8397.3662012.46211.47010.5949.8189.1298.5147.9637.469 APPLY THE CONCEPTS: Present value of an ordinary annuityMany times future sums of money will not come in one payment but in a number of periodic payments. For example, imagine that you want to buy a house and know that you will have periodic mortgage payments and you need to know howmuch you would have to invest today in order to facilitate all of those payments into the future. This is called an ordinary annuity and it says that a certain value today at a stated interest rate is equal to a certain number of future payouts for agiven amount per payment. The following timeline displays how an ordinary annuity pays out when distributed in three equal payments at an annually compounded interest rate of 5%.Payment: $6,000Payment: $6,000Payment: $6,000Year 1Year 2Year 3Present Value: ?The most simple and commonly used method of determining the present value of an ordinary annuity is to multiply the incremental payout by the appropriate rate found on the present value of an ordinary annuity table.

Answered: he company could save $6,000 per year…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

100%

Using the previous table, enter the correct factor for three periods at 5%:

Periodic payment	x	Factor	=	Present value
$6,000	x		=	$16,338

The controller at Ross has determined that the company could save $6,000 per year in engineering costs by purchasing a new machine. The new machine would last 12 years and provide the aforementioned annual monetary benefit throughout its entire life. Assuming the interest rate at which Ross purchases this type of machinery is 9%, what is the maximum amount the company should pay for the machine? $fill in the blank 5aca5ff34fa005f_2 (Hint: This is basically a present value of an ordinary annuity problem as highlighted above.)

Assume that the actual cost of the machine is $50,000. Weighing the present value of the benefits against the cost of the machine, should Ross purchase this piece of machinery?

Use snippets to answer

Present Value: ?
The most simple and commonly used method of determining the present value of an ordinary annuity is to multiply the incremental payout by the appropriate rate found on the present value of an ordinary annuity table.
+ Present Value of an Ordinary Annuity
Table 2 - Present Value of an Ordinary Annuity of $1 at Compound Interest
Period
5%
6%
7%
8%
9%
10%
11%
12%
1
0.952
0.943
0.935
0.926
0.917
0.909
0.901
0.893
1.859
1.833
1.808
1.783
1.759
1.736
1.713
1.690
3
2.723
2.673
2.624
2.577
2.531
2.487
2.444
2.402
3.546
3.465
3.387
3.312
3.240
3.170
3.102
3.037
4.329
4.212
4.100
3.993
3.890
3.791
3.696
3.605
5.076
4.917
4.767
4.623
4.486
4.355
4.231
4.111
7
5.786
5.582
5.389
5.206
5.033
4.868
4.712
4.564
6.463
6.210
5.971
5.747
5.535
5.335
5.146
4.968
7.108
6.802
6.515
6.247
5.995
5.759
5.537
5.328
10
7.722
7.360
7.024
6.710
6.418
6.145
5.889
5.650
11
8.306
7.887
7.499
7.139
6.805
6.495
6.207
5.938
12
8.863
8.384
7.943
7.536
7.161
6.814
6.492
6.194
13
9.394
8.853
8.358
7.904
7.487
7.103
6.750
6.424
14
9.899
9.295
8.745
8.244
7.786
7.367
6.982
6.628
15
10.380
9.712
9.108
8.559
8.061
7.606
7.191
6.811
16
10.838
10.106
9.447
8.851
8.313
7.824
7.379
6.974
17
11.274
10.477
9.763
9.122
8.544
8.022
7.549
7.120
18
11.690
10.828
10.059
9.372
8.756
8.201
7.702
7.250
19
12.085
11.158
10.336
9.604
8.950
8.365
7.839
7.366
20
12.462
11.470
10.594
9.818
9.129
8.514
7.963
7.469

APPLY THE CONCEPTS: Present value of an ordinary annuity
Many times future sums of money will not come in one payment but in a number of periodic payments. For example, imagine that you want to buy a house and know that you will have periodic mortgage payments and you need to know how
much you would have to invest today in order to facilitate all of those payments into the future. This is called an ordinary annuity and it says that a certain value today at a stated interest rate is equal to a certain number of future payouts for a
given amount per payment. The following timeline displays how an ordinary annuity pays out when distributed in three equal payments at an annually compounded interest rate of 5%.
Payment: $6,000
Payment: $6,000
Payment: $6,000
Year 1
Year 2
Year 3
Present Value: ?
The most simple and commonly used method of determining the present value of an ordinary annuity is to multiply the incremental payout by the appropriate rate found on the present value of an ordinary annuity table.

Expert Solution

Step 1

Given,

rate = 9%

year = 12

periodic payment = $6000

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