Filbert Company financed the purchase of land with a down payment of $10,000 and

Question

Filbert Company financed the purchase of land with a down payment of $10,000 and 40 semi-annual payments of $6,000. The annual interest rate is 16% and the first semi-annual payments will be made 6 moths after the purchase. The net present value of the cost of the land is:

PV of an annuity of 1 for 20 per. @ 8% is 9.8181
PV of an annuity of 1 for 20 per. @ 16% is 5.9288
PV of an annuity of 1 for 40 per. @ 8% is 11.9246
PV of an annuity of 1 for 40 per. @ 16% is 6.2335
Question 1 options:
a.$47,341.00 b. $68,908.00 c. $81,547.60 d. $71,547.60

please show work

Explanation / Answer

To fing NPV of Land, we have two parts to solve :- 1. Downpayment of $10,000 2. We have to find the PV of annuity which has PMT = $6000, n=40, i=16%/2 = 8% Semiannual Then we add 1+2 to arrive at NPV. Part 1 is starightfwd & is $10,000 Part 2 : PVA = PMT*(PVIFAi,n) ie PVA = $6000*(PVIFA8%,40) = $6000*11.9246 = $71547.60 So adding 1+2, we get NPV = 10,000+71547.60 = $81,547.60 So ans is (c)

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