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On November 1, Year 1, a company purchased a new machine that it does not have to pay for until November 1, Year 3. The total payment on November 1, Year 3, will include both principal and interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money concept?
A. Present value of 1.
B. Present value of annuity of 1.
C. Future amount of 1.
D. Future amount of annuity of 1.
Answer:A
Choice "A" is correct. The cost of the machine would be the total payment (principal and interest all due two years in the future) multiplied by the present value of 1 (at a 10% rate).