Homestyle Company requires a return on all investments of 9%. How much will the company be willing to pay for an investment that will pay $15 000 per year for 8 years?

Question

Quizplus · Accepted Answer

The company would use the present value of an annuity formula to determine how much it would be willing to pay for the investment. The formula is PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment ($15,000), r is the annual interest rate (9% or 0.09), and n is the number of periods (8 years). Plugging these values into the formula gives a present value of approximately $83,022, making option B the correct choice.

Homestyle Company Requires a Return on All Investments of 9