CIMA Exam CIMAPRA17-BA2-1 Topic 2 Question 80 Discussion

Actual exam question for CIMA's CIMAPRA17-BA2-1 exam

Question #: 80
Topic #: 2

A company's management accountant wishes to calculate the present value of the cost of renting a delivery vehicle. There will be five annual rental payments of $5,000, the first of which is due immediately. The company's discount rate is 12%.

Which TWO of the following are valid ways to calculate the present value of the rental payments? (Choose two.)

A$5,000 + ($5,000 x 3.605)

B$5,000 + $5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4

C$5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4+ $5,000/(1.12)5

D$5,000 x 3.605

E$5,000 + ($5,000 x 3.037)

Show Suggested Answer

Suggested Answer: A, D

by Veronique at Sep 17, 2024, 06:24 PM

Limited Time Offer

25%

Off

Get Premium CIMAPRA17-BA2-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Maryln

5 months ago

Option E is trying to be sneaky, but I don't think it's correct. The present value needs to be calculated separately for each payment.

upvoted 0 times

Long

3 months ago

The present value needs to be calculated separately for each payment.

upvoted 0 times

...

Hailey

3 months ago

Option E is trying to be sneaky, but I don't think it's correct.

upvoted 0 times

...

Tamala

4 months ago

C) $5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4+ $5,000/(1.12)5

upvoted 0 times

...

Barb

4 months ago

A) $5,000 + ($5,000 x 3.605)

upvoted 0 times

...

Monte

5 months ago

I'm not sure, but I think option C could also be valid because it divides each rental payment by the discount rate.

upvoted 0 times

...

Nikita

5 months ago

Haha, I'm going to have to do some serious studying before this exam. All these formulas are making my head spin!

upvoted 0 times

...

Nakisha

5 months ago

I think D is also a valid way to calculate the present value. The annuity factor of 3.605 is the key here.

upvoted 0 times

Wilbert

4 months ago

A: Yeah, D seems to be a valid option based on that factor.

upvoted 0 times

...

Tabetha

4 months ago

B: I agree, the annuity factor of 3.605 is important for the calculation.

upvoted 0 times

...

Patti

4 months ago

A: I think B and D are the valid ways to calculate the present value.

upvoted 0 times

...

Junita

5 months ago

I agree with Milly, option B is the correct way to calculate the present value of the rental payments.

upvoted 0 times

...

Milly

5 months ago

I think option B is correct because it calculates the present value of each rental payment using the discount rate.

upvoted 0 times

...

Gracia

5 months ago

Option B and C look good to me. The present value formula is the way to go here.

upvoted 0 times

Carma

4 months ago

Make sure to discount each future payment back to its present value.

upvoted 0 times

...

Gilberto

4 months ago

It's important to consider the discount rate when calculating present value.

upvoted 0 times

...

Eloisa

4 months ago

Using the present value formula is the best approach for this calculation.

upvoted 0 times

...

Hubert

5 months ago

Yes, the present value formula is definitely the key to solving this calculation.

upvoted 0 times

...

Brandee

5 months ago

I agree, option B and C are the correct ways to calculate the present value.

upvoted 0 times

...

Sarina

5 months ago

I agree, option B and C are the correct ways to calculate the present value.

upvoted 0 times

...