What amount should Arthur Company pay for this investment if it earns a 11% retu
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Question
What amount should Arthur Company pay for this investment if it earns a 11% return. Round answer to 2 decimal places, e.g. 25.25.)
Brief Exercise D-11 3 Your answer is incorrect. Try again. Arthur Company is considering investing in an annuity contract that will return $34,300 annually at the end of each year for 16 years TABLE 4 Present Value of an Annuity of I 11% 12% - .94340 .92593 .91743 .90909 .90090 .89286 .86957 1.88609 85941 .83339 178326 1759 1.73554 171252 169005 1.62571 .77509 2.72325 2.6730 2.57710 2.53130 2.48685 2.44371 240183 2.28323 .62990 3.54595 346511 3.31213 3.23972 3.16986 3.10245 3.03735 2.85498 4.45182 4.32948 4.21236 3.99271 3.88965 3.79079 3.69590 3.60478 3.35216 5.24214 5.07569 4.91732 4.62288 4.48592 4.35526 4.23054 4.11141 3.78448 6.00205 5.78637 5.58238 5.20637 5.03295 4.868424.71220 4.56376 4.16042 6.20979 5.74664 5.53482 5.33493 5.14612 4.96764 448732 43533 7.10782 680169 6.24689 5.99525 5.75902 5.53705 5.32825 4.77158 8.11090 7.72173 7.36009 6.71008 6.41766 6.14457 5.88923 5.65022 5.01877 7.88687 7.13896 6.80519 6.49506 6.20652 5.93770 5.23371 9.38507 8.86325 8.38384 7.53608 7.16073 6.81369 6.49236 6.19437 5.42062 9.98565 9.39357 8.85268 7.90378 7.48690 7.10336 6.74987 6.42355 5.58315 10.56312 9.89864 9.29498 8.244247.78615 7.36669 6.98187 6.62817 5.72448 11.11839 10.37966 9.71225 8.55948 8.06069 7.60608 7.19087 6.81086 5.84737 11.65230 10.83777 10.10590 8.85137 8.31256 7.82371 7.37916 6.97399 5.95424 12.16567 11.27407 10.47726 9.12164 8.54363 8.02155 7.54879 7.119636.04716 12.65930 11.68959 10.82760 9.37189 8.75563 8.20141 7.70162 724967 6.12797 3.13394 12.08532 11.15812 9.60360 8.95012 8.36492 7.83929 7.36578 6.19823 3.59033 12.46221 1146992 9.81815 9.12855 8.51356 7.96333 746944 6.25933 5% 10% 15% 95238 6.73274 646321 6 10 8.76048 8.30641 12 13 17 18 19 20 What amount should Arthur Company pay for this investment if it earns a 11% return? (Round answer to 2 decimal places, eg. 25.25.) Arthur Company should pay 553350.92 Click if you would like to Show Work for this question:
Explanation / Answer
In the given case, we need to determine the present value of annuity. The present value of annuity can be calculated with the use of following equation:
Present Value of Annuity = Annual Amount*PVA(Rate,Years)
________
Solution:
Here Annual Amount = $34,300, Rate = 11% and Years = 16
Substituting these values in the above equation, we get,
Present Value of Annuity = 34,300*PVA(11%,16)
Using the table provided, we locate the value for 16 Years (Periods Column) at 11%. The present value of annuity factor (PVA(11%,16)) will be 7.37916.
Arthur Company Should Pay (Present Value of Annuity) = 34,300*7.37916 = $253,105.19 (answer)
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