Present value of an annuity: Myers, Ltd, will be making lease payments of $3,895.50 for a 10-year period, starting at the end of this year. If the firm uses a 9 per cent discount rate, what is the present value of this annuity? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

To find the present value of the annuity, we need to use the formula:

PV = A x [{1 - (1+r)^-n} / r]

where PV is the present value of the annuity, A is the lease payment, r is the discount rate, and n is the number of periods.

In this case, A = $3,895.50, r = 9%, and n = 10. Plugging these values into the formula, we get:

PV = $3,895.50 x [{1 - (1+0.09)^-10} / 0.09]
   = $3,895.50 x [{1 - 0.4221} / 0.09]
   = $25,000 (rounded to the nearest dollar)

Therefore, the present value of the annuity is $25,000. Therefore, the best choice is C).

Present Value of an Annuity: Myers, Ltd, Will Be Making