Pelcher Company acquires a machine by issuing a note that re

Pelcher Company acquires a machine by issuing a note that requires semiannual payments of $5,200 for 4 years. The interest rate on the note is 10% compounded semiannually. What is the cost of the machine?

A.$29,863.24

B.$33,608.64

C.$18,177.10

D.$16,467.27

E.$41,600.00

Solution

Semi Annual Payments = $5,200

Interest Rate = 10% / 2 = 5% [Since, the compounding is semiannually]

Number of Periods (r) = 4 years x 2 = 8 [Since, the compounding is semiannually]

Semiannual payments = Cost of the Machine / [PVIFA r, n]

$5,200 = Cost of the machine / [PVIFA 5%, 8 Years]

$5,200 = Cost of the Machine / 6.46320

Cost of the Machine = $5,200 x 6.46320

Cost of the Machine = $33,608.64

Hence, The Answer is “B. $33,608.64 “