Question

Grant Corporation is looking to purchase a building costing $930,000 by paying $315,000 cash on the purchase date, and agreeing to make payments every three months for the next five years. The first payment is due three months after the purchase date. Grant's incremental borrowing rate is 8%. Each of the payments is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)

$56,876.

$53,361.

$30,750.

$37,611.

Answer 1

$37,611.

Working:

Cost of House					$ 9,30,000
Less:Cash Payment on purchase date					$ 3,15,000
Balance					$ 6,15,000
÷ Present Value of Annuity of $ 1					16.351
Each Payment					$    37,611
Working:
Present value of annuity of $ 1			=	(1-(1+i)^-n)/i		Where,
			=	(1-(1+0.02)^-20)/0.02		i	8%/4	=	0.02
			=	16.351		n	5*4	=	20