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assume boeing sold 767 aircraft to American airlines on January 1, 2016. the sales agreement required...

assume boeing sold 767 aircraft to American airlines on January 1, 2016. the sales agreement required American airlines to pay $10million immediately and $10million on December 31, of each year for 20 years, beginning on December 31, 2016. boeing and American airlines judge that 8% is an appropriate interest rate for this arrangement.

a. commute the present value of the receivable on boeing books on January 1, 2016, immediately after receiving the 10million down payment

b. commute the prevent value of the receivables on boeing books on December 31, 2016

c. commute the present value of the receivables on boeing book on December 31, 2017

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Answer #1
1-
present value of the receivable on boeing books on January 1, 2016
present value of receivables -today annuity payment*PVAF at 8% for 20 years 10*9.818125 98.18
PVAF at 8% for 20 years 1-(1+r)^-n/r 1-(1.08)^-20 / 8% .78545/8% 9.818125
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prevent value of the receivables on boeing books on December 31, 2016
present value of receivables -at dec 31 2016 annuity payment*PVAF at 8% for 19 years 10*9.6035 96.04
PVAF at 8% for 19 years 1-(1+r)^-n/r 1-(1.08)^-19 / 8% .76828/8% 9.6035
3-
prevent value of the receivables on boeing books on December 31, 2017
present value of receivables -at dec 31 2017 annuity payment*PVAF at 8% for 18 years 10*9.3718 93.72
PVAF at 8% for 18 years 1-(1+r)^-n/r 1-(1.08)^-18 / 8% .74975/8% 9.371875
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