Computation of present value

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1. (Computation of Present Value) Using the appropriate interest table, compute the present values of the following periodic amounts due at the end of the designated periods.

(a) $30,000 receivable at the end of each period for 8 periods compounded at 12%.

(b) $30,000 payments to be made at the end of each period for 16 periods at 9%.

(c) $30,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%

E6-12 (Analysis of Alternatives) The Black Knights Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Black Knights has decided to locate a new factory in the Panama City area. Black Knights will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings.

Building A: Purchase for a cash price of $600,000, useful life 25 years.

Building B: Lease for 25 years with annual lease payments of $69,000 being made at the beginning of the year.

Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $7,000. Rental payments will be received at the end of each year. The Black Knights Inc. has no aversion to being a landlord.

Instructions

In which building would you recommend that The Black Knights Inc. locate, assuming a 12% cost of funds?

Reference no: EM13764090

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