**Problem on Present Value of Annuity****Question:**Whispering Winds Corp. has just purchased equipment that requires annual payments of $75,000 to be paid at the end of each of the next 5 years. The appropriate discount rate is 15%. What is the present value of the payments?**Options:**- $251,412- $184,188- $287,348- $297,213---To solve this problem, we need to calculate the present value of an annuity. The formula for the present value of an annuity is:\[ PV = P \times \left( \frac{1 - (1 + r)^{-n}}{r} \right) \]where:- $ PV $ is the present value- $ P $ is the annual payment (in this case, $75,000)- $ r $ is the discount rate (in this case, 15% or 0.15)- $ n $ is the number of years (in this case, 5)Let's apply the formula:\[ PV = 75{,}000 \times \left( \frac{1 - (1 + 0.15)^{-5}}{0.15} \right) \]First, calculate $(1 + r)^{-n}$:\[ (1 + 0.15)^{-5} = (1.15)^{-5} \approx 0.4972 \]Then, calculate the rest of the equation:\[ 75{,}000 \times \left( \frac{1 - 0.4972}{0.15} \right) = 75{,}000 \times \left( \frac{0.5028}{0.15} \right) \approx 75{,}000 \times 3.352 \approx 251{,}400 \]Hence, the closest option is:- $251,412Therefore, the correct answer is $251,412.

Present value is calculated based on annual cash flows and the discount rate. The annual payment is…

Whispering Winds Corp. has just purchased equipment that requires annual payments of $75000 to be paid at the end of each of the next years. The appropriate discount rate is 15%. Wh is the present value of the payments? O $251412 O $184188 O $287348 O $297213

Whispering Winds Corp. has just purchased equipment that requires annual payments of $75000 to be paid at the end of each of the next years. The appropriate discount rate is 15%. Wh is the present value of the payments? O $251412 O $184188 O $287348 O $297213

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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