Present value of an annuity: Myers, 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

We can use the formula for the present value of an annuity:

PV = PMT x [(1 - (1/(1+r)^n))/r]

Where PV is the present value, PMT is the lease payment, r is the discount rate, and n is the number of periods.

Plugging in the given values, we get:

PV = $3,895.50 x [(1 - (1/(1+0.09)^10))/0.09]
PV = $3,895.50 x 6.418
PV = $24,996.89

Rounding to the nearest dollar, we get $25,000. Therefore, the best choice is C) $25,000.

Present Value of an Annuity: Myers, Inc