Buyer A , who is willing to pay $380,000 for the land now. Buyer B , who is will
ID: 2551086 • Letter: B
Question
Buyer A, who is willing to pay $380,000 for the land now.
Buyer B, who is willing to make 20 annual payments of $60,000 each at the end of each year.
Buyer C, who is willing to make 20 annual payments of $60,000 each at the beginning of each year.
Buyer D, who is willing to make payments of $25 000 every 10 years and $40,000 each year for the following 10 years, all payments payable at the end of each year.
Assuming that the appropriate rate of interest is 9%, to whom should Dessin Company sell the land? Show your calculations!
Explanation / Answer
To BUYER C
The Amount received from Buyer C is higher ( $ 4,19,714), Therefore, Dessin Company Should sell the land to BUYER C
1.Sale Value received from BUYER A
= $ 3,80,000
2.Sale Value received from BUYER B
= P x ( PVAF 9%,10 Years )
= $ 60,000 x 6.417647
= $ 3,55,059
3.Sale Value received from BUYER C
= P x [ (PVAF 9%,9Years) + 1 ]
= $ 60,000 x 6.995247
= $ 4,19,714
4.Sale Value received from BUYER D
=[ P1 x PVAF 9%,10 Years] + [ P x[ ( PVAF 9%,20 Years ) – (PVAF 9%,10 Years)]
= [ $ 25,000 x 6.4177 ] + [ $ 40,000 x 2.7108]
= $ 2,68,874
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