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The Jenkins Corporation has purchased an executive jet. The company has agreed to pay $201,600 per...

The Jenkins Corporation has purchased an executive jet. The company has agreed to pay $201,600 per year for the next 10 years and an additional $2,016,000 at the end of the 10th year. The seller of the jet is charging 7% annual interest. Determine the liability that would be recorded by Jenkins. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your answer to nearest whole dollar.)

Solutions

Expert Solution

Present value of liability $       24,40,786
Working;
Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.07)^-10)/0.07 i = 7%
= 7.023581541 n = 10
Present value of 1 = (1+i)^-n
= (1+0.07)^-10
= 0.508349292
Present value of annual cash flow = Annual Cash flow * Present value of annuity of 1
= $          2,01,600 * 7.02358154
= $       14,15,954
Present value of Terminal value = Cash flow at the end of period * Present value of 1
= $       20,16,000 * 0.50834929
= $       10,24,832
Present value of liability = Sum of Present value of cash flows
= $       14,15,954 + $ 10,24,832
= $       24,40,786

ekkarill92 answered 2 years ago
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