Potash Corporation financed the purchase of a building by making semiannual payments of $27,000 for the next twenty years, with the first payment due six months from today. The purchase cost of the building is considered to be the present value of those payments. What was the purchase cost of the building to Potash assuming an annual interest rate of 10%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $486,460
B) $463,295
C) $540,000
D) $153,409

Question

Quizplus · Accepted Answer

The present value of an annuity formula is used to calculate the purchase cost. With semiannual payments of $27,000, an annual interest rate of 10% (or 5% per period), and 40 periods (20 years), the present value is approximately $463,295.

Potash Corporation Financed the Purchase of a Building by Making