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

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Maryln

9 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.

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Long

7 months ago

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

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Hailey

8 months ago

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

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Tamala

8 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

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Barb

8 months ago

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

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Monte

9 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.

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Nikita

9 months ago

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

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Nakisha

9 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.

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Wilbert

8 months ago

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

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Tabetha

8 months ago

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

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Patti

8 months ago

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

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Junita

9 months ago

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

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Milly

9 months ago

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

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Gracia

9 months ago

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

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Carma

8 months ago

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

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Gilberto

8 months ago

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

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Eloisa

8 months ago

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

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Hubert

9 months ago

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

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Brandee

9 months ago

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

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Sarina

9 months ago

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

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