Question

15) As a manager responsible for an operating budget, you will usually be expected to compare your department's actual expenses to your budgeted expenses as well as to its performance in prior periods.

True

False

My nephew has promised to repay a loan by making $1,200.00 payments in April of each of the next 5 years. Using the Present Value Table found in Appendix 13-A on page 141, and assuming an interest rate of 5%, what is the value of these payments? ( This question is worth 15 points)

a.

$3,917.04

b.

$4,329.40

c.

$5,195.28

d.

I have no idea, but for some unknown reason I am not willing to guess

e.

None of the above answers are correct

Answer 1

Answer 1:

True

Explanation:

As a manager responsible for an operating budget, you are expected to comply with budget and improve performance.

For this, manager is required to monitor variances (Actual vs. Budget) and take required action if there are unfavorable variances. Further current period performance in budget needs to be compared to performance in prior periods. For example in prior period if there were issues and actions were taken, current period performance should show improvement compared to prior periods.

Hence the statement is true.

Answer 2:

Correct answer is:

c. $5,195.28

Explanation:

Loan repayment has to be made by making $1,200.00 payments in April of each of the next 5 years.

This is an ordinary annuity.

Interest rate = 5%

Number of annual payments (at the end of period) = 5

PV of $1 ordinary annuity for 5 years at 5% discount rate = 4.32948

Hence:

Current value of these payments = Annual payments * PV of $1 ordinary annuity for 5 years at 5% discount rate

= 1200 * 4.32948

= $5195.38

Hence option c is correct and other options a, b, d and e are incorrect.