Question

rent Lane Co. has a machine that cost $900,000. It is to be leased for 20 years with rent received at the end of each year Lane wants a return of 10% Calculate the amount of the annual A) Present value of 1 at 10% for 20 periods 0.14864 B) Future value of 1 at 10% for 20 periods 6.72750 C) Present value of an ordinary annuity at 10% for 20 periods D) Future value of an ordinary annuity at 10% for 20 periodo 57 27500 Express your answer as an integer without sign (Round all computations to the nearest dollar. For example, Input 100.000" if your answer is $100,000 22) 8.51356

Answer 1

Ans is 105714

Calculation

1st Method

Formula for Present value of Annuity is

P = A [ 1-1/(1+r)ⁿ] / r

A =[ P ×r× (1+r)ⁿ ]/ (1+r)ⁿ- 1

Where A is annual payment or receipt

P is the principle amount =900000

r = Rate of interest or Required rate of return =10%

n = number of payment =20

A =900000×0.10×(1+0.10)²⁰ / (1.10)²⁰-1

=900000×0.10×6.72750/ 6.72750-1

=605475/5.7275

=105714

i have calculated it on the basis of fv given for 20 year

formula for $1. Future value = 1(1+r)ⁿ

One more Way to calculate Annuity is

2nd Method

Annuity = Present Value / PVAF  

=90000/8.51356

=105713.7085 ie 105714

PVAF = Present value annuity factor at 10% for 20 year .