Rudy Corporation is looking to purchase a building costing $500,000 by paying $100,000 cash on the purchase date,and agreeing to make annual payments for the next ten years; the first payment is due one year after the purchase date.Rudy's incremental borrowing rate is 10%.How much will each of the annual payments be?
A)$65,098
B)$86,821
C)$55,098
D)$44,000

Question

Quizplus · Accepted Answer

The annual payment ($69,457) is equal to the amount financed ($400,000) divided by the present value of a 10%, 10-period ordinary annuity factor (6.1446).

Rudy Corporation Is Looking to Purchase a Building Costing $500,000