Solution:
Computation of Present Value of Purchasing and Leasing option - Ivanhoe Inc. | ||||
Particulars | Period | Amount | PV Factor | Present Value |
Purchasing Option: | ||||
Down payment | 0 | $440,000.00 | 1.00000 | $440,000 |
Annual installment | 1-5 | $354,000.00 | 3.60478 | $1,276,092 |
Occupancy expenses | 1-12 | $59,000.00 | 6.19437 | $365,468 |
Sale Value of building | 12 | -$510,000.00 | 0.25668 | -$130,907 |
Present Value of Buying Option (A) | $1,950,653 | |||
Leasing Option: | ||||
Annual lease payment | 0-11 | $350,000.00 | 6.93770 | $2,428,195 |
Security deposit | 0 | $115,000.00 | 1.00000 | $115,000 |
Return of Security deposit | 12 | -$115,000.00 | 0.25668 | -$29,518 |
Present Value of Leasing Option (B) | $2,513,677 |
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