Question

please write in text not in handwriting since its hard to read from a paper pic and i need an explanation for each problem thank you

Microsoft leases rights to Microsoft Word, Excel, Powerpoint and other software applications to hccc School of Business, Campus Administration for 14 annual payments of $8,500 at the beginning of each year. The payments will begin five years from today. If the market rate of interest is 8%, what is the present value of the payments?

Answer 1

~The payments will begin five years from today. That means the payments will begin in Year 5.

~ Therefore, we will first find the Present Value of Payments as on Year 4: (Because payments begin in Year 5):

Since the payments are at the beginning of each year, set BGN mode in financial calculator by pressing "2ND", "BGN", "2ND", "SET" buttons.

Now input following values in financial calculator:

14 = N

8500 = PMT

8 = I/Y

0 = FV

"CPT", "PV",

Therefore, PV as on Year 4 = $75,682.09

~ Now, we will discount this value back to Year 0 from Year 4 :

Present Value (Year 0) =  $75,682.09 / (1.08)⁴

= $55,628.60

Therefore, Present Value of Payments = $55,628.60