Question

The Jenkins Corporation has purchased an executive jet. The company has agreed to pay $201,300 per year for the next 10 years and an additional $2.013,000 at the end of the 10th year. The seller of the jet is charging 7% annual interest. (FV of St. PV of SLEVA of St and PVA of 51) (Use the appropriate factor(s) from the tables provided.) Determine the liability that would be recorded by Jenkins. (Round your answer to the nearest whole dollar) Present value

Answer 1

1 Present Value of Liability Year Cash Flows PV Factor @ 7% Discounted Cash Flow 01-10 $2,01,300 7.0236 $14,13,850.68 10 $20,13,000 0.5083 $10,23,207.90 Present value $24,37,058.58

Option 1: Pay $670 for 30 months and $12000 at end of 30th month Option 2: One time payment of $ 20.280 at the time of purchase Monthly Interest Rate = 24%/12 = 2% Months Cash Flows PV Factor @ 2% Discounted Cash Flow 01-30 $670 22.3965 $15,005.66 30 $12,000 0.5521 $6,625.20 Present value $21,630.86 $21,630.86 1-a 1-6 Present value Better deal Option 2 One Time Payment of $ 20,280 is the better deal, as it involves less out flow

Option 1: Collect $ 102,000 today Option 2: Receive $ 20,100 at the end of each year for 7 years Interest rate 9% Year Cash Flows PV Factor @ 9% Discounted Cash Flow 01-07 $20,100 5.032952835 $1,01,162.35 Present value $1,01,162.35 Option 1 to be selected Option 1 involves higher cash inflow