Moore's Inc. 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 percent discount rate, what is the present value of this annuity? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

Using a financial calculator or Excel, the present value of the annuity can be calculated as follows:
PV = PMT x [(1 - (1 / (1 + r)n)) / r]
where PV = present value, PMT = periodic payment, r = discount rate, and n = number of periods.

Plugging in the values given, we get:
PV = 3,895.50 x [(1 - (1 / (1 + 0.09)10)) / 0.09]
PV = $25,031.38

Rounding to the nearest dollar, the present value of the annuity is $25,000. Therefore, choice C is the best answer.