Question

Red Sun Rising Corp. has just signed a lease for its new manufacturing facility. The lease agreement calls for annual payments of $1,650,000 for 25 years with the first payment due today. If the interest rate is 3.47 percent, what is the value of this liability today

Answer 1

The value of this liability today = $28,229,985.11

Explanation:

Given data: annual payments = $1650000, number of years given = 25 years, interest rate given = 3.47 percent

Now, we have to find out the liability that is owed today

The following formula is used to calcute the liability aamount which is outstanding as on today

Value of the laibility today = ( 1 + r) multiply PMT multiply ( 1 minus ( 1 by (1 plus r power n))) by r

Now, we have to put the values in the above given formula

1.0347 multiply 1650000 multiply ( 1 minus ( 1 by (1.0347 power 25))) by 0.0347

Thus, solving the above equation we get, = $28,229,985.11