E6-4

(Computation of Future Values and Present Values)

Using the appropriate interest table, answer the following questions. (Each case is independent of
the others). (Round the results of computations to 2 decimal places, e.g. 12,250.25 and use the
rounded amount to calculate the final answer. Round the final answer to 2 decimal places,
e.g. 10,250.25.)
(a) What is the future value of 20 periodic payments of $5,000 each made at the beginning of each period and c
8%?

$247,114.58
(b) What is the present value of $2,500 to be received at the beginning of each of 30 periods, discounted at 10%
interest?

$25,924.00
(c) What is the future value of 15 deposits of $2,000 each made at the beginning of each period and compounde
value as of the end of the fifteenth period.)

$69,899.46
(d) What is the present value of six receipts of $3,000 each received at the beginning of each
period, discounted at 9% compounded interest?

$14,668.96

E6-4

Future value of an ordinary annuity of $5,000 a

(a) $228,809.80 ($5,000 × 45.76196)
period for 20 periods at 8%
Factor (1 + .08) × 1.08
Future value of an annuity due of $5,000 a period at
$247,114.58
8%

Present value of an ordinary annuity of $2,500 for 30

(b) $23,567.28 ($2,500 × 9.42691)
periods at 10%
Factor (1 + .10) × 1.10
Present value of annuity due of $2,500 for 30 periods
$25,924.00
at 10%

Future value of an ordinary annuity of $2,000 a

(c) $63,544.96 ($2,000 × 31.77248)
period for 15 periods at 10%
 Factor (1 + .10) × 1.10
Future value of an annuity due of $2,000 a period for
$69,899.46
15 periods at 10%

Present value of an ordinary annuity of $3,000 for 6

(d) $13,457.76 ($3,000 × 4.48592)
periods at 9%
Factor (1 + .09) × 1.09
Present value of annuity due of $3,000 for 6 periods
$14,668.96
at 9%

*****************************************************************************
********
E6-8

(Computations for a Retirement Fund)

Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday, decides
to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30,
beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make
equal contributions on June 30 of each of the years 2010-2013. (Round all answers to 2 decimal
places, e.g. 10,250.25. Hint: Use tables in text.)
(a) How much must the balance of the fund equal on June 30, 2013, in order for Stephen
Bosworth to satisfy his objective?

$82,803.25
(b) What are each of Stephen's contributions to the fund?

$18,375.77

E6-8

Present value of an ordinary annuity of 1 for 4 periods x

(a) 3.31213
8%
Annual withdrawal × $25,000
Required fund balance at June 30, 2013 $82,803.25
(b) Fund balance at June 30, 2013 $82,803.25
Future amount of ordinary annuity at 8% for 4 = $18,375.77
4.50611
years
*****************************************************************************
********

E6-9

(Unknown Rate)
Kross Company purchased a machine at a price of $100,000 by signing a note payable, which
requires a single payment of $118,810 in 2 years. Assuming annual compounding of interest,
what rate of interest is being paid on the loan? (Hint: Use tables in text. Round interest rate to
0 decimal places, eg 5%.)
Rate of interest 9%

E6-9

The rate of interest is determined by dividing the future value by the present value and then find
the factor in the FVF table with n=2 that approximate that number:
$118,810 = $100,000 (FVF2, i%)
$118,810 ÷ $100,000 = (FVF2, i%)
1.1881 = (FVF2, i%) - reading across the n = 2 row reveals that i = 9%.
*****************************************************************************
********

E6-11

(Evaluation of Purchase Options)

Rossi Excavating Inc. is purchasing a bulldozer. The equipment has a price of £100,000. The
manufacturer has offered a payment plan that would allow Rossi to make 10 equal annual
payments of £15,582, with the first payment due one year after the purchase. (Hint: Use tables
in text.)
(a) How much total interest will Rossi pay on this payment plan?

£55,820
(b) Rossi could borrow £100,000 from its bank to finance the purchase at an annual rate of 8%.
Should Rossi borrow from the bank or use the manufacturer's payment plan to pay for the
equipment?
 Borrow from the bank

E6-11

(a) Total interest = Total Payments – Amount owed today

£155,820 (10 × £15,582) – £100,000 = £55,820.

(b) Rossi should borrow from the bank, since the 8% rate is lower than the manufacturer's 9%
rate determined below.
PV - OA10, i%= £100,000 ÷ £15,582
= 6.41766 – Inspection of the 10 period row reveals a rate of 9%.

*****************************************************************************
********
E6-13

(Computation of Bond Liability)

Messier Inc. manufactures cycling equipment. Recently, the vice president of operations of the
company has requested construction of a new plant to meet the increasing demand for the
company's bikes. After a careful evaluation of the request, the board of directors has decided to
raise funds for the new plant by issuing $3,000,000 of 11% term corporate bonds on March 1,
2010, due on March 1, 2025, with interest payable each March 1 and September 1. At the time of
issuance, the market interest rate for similar financial instruments is 10%.
As the controller of the company, determine the selling price of the bonds. (Round answer to
zero decimal places, e.g. 12,520. Hint: Use tables in text.)
Selling price of bonds $3,230,594

E6-13

Formula for the interest payments:

PV - OA = R (PVF - OAn,i)
PV - OA = $165,000 (PVF - OA30, 5%)
 PV - OA = $165,000 (15.37245)
PV - OA = $2,536,454
Formula for the principal:
PV = FV (PVFn,i)
PV = $3,000,000 (PVF30, 5%)
PV = $3,000,000 (0.23138)
PV = $694,140
The selling price of the bonds = $2,536,454 + $694,140 = $3,230,594
*****************************************************************************
********

E6-14

(Computation of Pension Liability)

Calder, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long
negotiation with the local labor union, the company decided to initiate a pension plan as a part of
its compensation plan. The plan will start on January 1, 2010. Each employee covered by the
plan is entitled to a pension payment each year after retirement. As required by accounting
standards, the controller of the company needs to report the pension obligation (liability). On the
basis of a discussion with the supervisor of the Personnel Department and an actuary from an
insurance company, the controller develops the following information related to the pension plan.
Average length of time to retirement 15 years
Expected life duration after retirement 10 years
Total pension payment expected each year after retirement for
all employees. Payment made at the end of the year. $800,000 per year
The interest rate to be used is 8%.
On the basis of the information above, determine the present value of the pension obligation
(liability). (Round results of computations and answer to 0 decimal places, e.g. 2,200,200.
Hint: Use tables in text.)
$1,692,228*
*
Multiple correct answers are possible for this question; please rollover the answer field to see
all possible answers

E6-14

FORMULA:
PV - OA = R (PVF - OAn, i)
PV - OA = $800,000 (PVF - OA25-15, 8%)
PV - OA = $800,000 (10.67478 - 8.55948)
PV - OA = $800,000 (2.11530)
 PV - OA = $1,692,240
OR
Present value of the expected annual pension payments at the end of the 10th year:
PV - OA = R (PVF - OAn, i)
PV - OA = $800,000 (PVF - OA10,8%)
PV - OA = $800,000 (6.71008)
PV - OA = $5,368,064
Present value of the expected annual pension payments at the beginning of the current year:
PV = FV (PVFn, i)
PV = $5,368,064 (PVF15, 8%)
PV = $5,368,064 (0.31524)
PV = $1,692,228 *
* Difference due to rounding
The company's pension obligation (liability) is $1,692,228
*****************************************************************************
********

E6-15

(Investment Decision)
Derrick Lee just received a signing bonus of $1,000,000. His plan is to invest this payment in a
fund that will earn 6%, compounded annually. (Hint: Use tables in text.)
(a) If Lee plans to establish the DL Foundation once the fund grows to $1,898,000, how many
years until he can establish the foundation?

11 years
(b) Instead of investing the entire $1,000,000, Lee invests $300,000 today and plans to make 9
equal annual investments into the fund beginning one year from today. What amount should
the payments be if Lee plans to establish the $1,898,000 foundation at the end of 9 years?
(Round answer to 2 decimal places, e.g. 100,100.25.)

$121,061.46

E6-15

= $1,898,000 ÷
(a) FVF(n, 6%)
$1,000,000
= 1.898
 Reading down the 6% column, 1.898 corresponds to 11 periods.
(b) By setting aside $300,000 now, Lee can gradually build the fund
to an amount to establish the foundation.

FV = $300,000 (FVF9, 6%)

= $300,000 (1.68948)
= $506,844 - Thus, the amount needed from the annuity:
$1,898,000 - $506,844 = $1,391,156

Payments = FV ÷ (FV - OA9, 6%)

= $1,391,156 ÷ 11.49132
= $121,061.46

*****************************************************************************
********
E6-16

(Retirement of Debt)
Rual Fernandez borrowed $90,000 on March 1, 2008. This amount plus accrued interest at 12%
compounded semiannually is to be repaid March 1, 2018. To retire this debt, Rual plans to
contribute to a debt retirement fund five equal amounts starting on March 1, 2013, and for the
next 4 years. The fund is expected to earn 10% per annum.
How much must be contributed each year by Rual Fernandez to provide a fund sufficient to retire
the debt on March 1, 2018? (Round computations for future value to zero decimal places and
use the rounded amount to calculate the final answer. Round the final answer to zero decimal
places, e.g. 20,250. Hint: Use tables in text.)
Periodic Rent $42,981

E6-16

Amount to be repaid on March 1, 2018

Formula:
FV = PV (FVFn,i)
FV = $90,000 (FVF20,6%)
FV = $90,000 (3.20714)
FV = $288,643
Amount of annual contribution to retirement fund
Future value of ordinary annuity of 1 for 5 periods at
1. 6.10510
10%
2 Factor ( 1 + .10) × 1.10000
3 Future value of an annuity due of 1 for 5 periods at 10% 6.71561
4 Periodic rent ($288,643 ÷ 6.71561) $42,981

*****************************************************************************
********

E6-17

(Computation of Amount of Rentals)

Your client, Wyeth Leasing Company, is preparing a contract to lease a machine to Souvenirs
Corporation for a period of 25 years. Wyeth has an investment cost of $421,087 in the machine,
which has a useful life of 25 years and no salvage value at the end of that time. Your client is
interested in earning an 11% return on its investment and has agreed to accept 25 equal rental
payments at the end of each of the next 25 years.
You are requested to provide Wyeth with the amount of each of the 25 rental payments that will
yield an 11% return on investment. (Round the final answer to zero decimal places, e.g. 20,250.
Hint: Use tables in text.)
Rental payments $50,000

E6-17

Formula:
PV - OA = R (PV - OAn,i)
$421,087 = R (PVF - OA25, 11%)
$421,087 = R (8.42174)
R = $421,087 ÷ 8.42174
R = $50,000

*****************************************************************************
********

E6-18

Correct.

(Least Costly Payoff)

Assume that Sonic Foundry Corporation (USA) has a contractual debt outstanding. Sonic has
available two means of settlement: It can either make immediate payment of $3,500,000, or it
can make annual payments of $400,000 for 15 years, each payment due on the last day of the
year.
Which method of payment do you recommend, assuming an expected effective interest rate of
8% during the future period? (Hint: Use tables in text.)
Annual payments
E6-18

PV - OA = R (PVF - OAn,i)
PV - OA = $400,000 (PVF - OA15, 8%)
PV - OA = $400,000 (8.55948)
PV - OA = $3,423,792
The recommended method of payment would be the 15 annual payments of $400,000, since the
present value of those payments ($3,423,792) is less than the alternative immediate cash
payment of $3,500,000.
*****************************************************************************
********

E6-19

(Least Costly Payoff)

Assume that Sonic Foundry Corporation (USA) has a contractual debt outstanding. Sonic has
available two means of settlement: It can either make immediate payment of $3,500,000, or it
can make annual payments of $400,000 for 15 years, each payment must begin now and be made
on the first day of each of the 15 years.
Which method of payment do you recommend, assuming an expected effective interest rate of
8% during the future period? (Hint: Use tables in text.)
Immediate payment

E6-19

PV - AD = R (PVF - ADn,i)
PV - AD = $400,000 (PVF - AD15, 8%)
PV - AD = $400,000 (9.24424)
PV - OA = $3,697,696
The recommended method of payment would be the immediate cash payment of $3,500,000,
since that amount is less than the present value of the 15 annual payment of $400,000
($3,697,696).
*****************************************************************************
********
E6-20

(Expected Cash Flows)

For each of the following, determine the expected cash flows. (For negative numbers use either
a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)
Cash Flow Estimate Probability Assessment Expected Cash Flow
(a) £4,800 20% £960
6,300 50% 3,150
7,500 30% 2,250
Total Expected Value £6,360

(b) £5,400 30% £1,620

7,200 50% 3,600
8,400 20% 1,680
Total Expected Value £6,900

(c) £(1,000) 10% £-100*

3,000 80% 2,400
5,000 10% 500
Total Expected Value £2,800
*
Multiple correct answers are possible for this question; please rollover the answer field to see
all possible answers
*****************************************************************************
********

E6-21

(Expected Cash Flows and Present Value)

Angela Contreras is trying to determine the amount to set aside so that she will have enough
money on hand in 2 years to overhaul the engine on her vintage used car. While there is some
uncertainty about the cost of engine overhauls in 2 years, by conducting some research online,
Angela has developed the following estimates.
Engine Overhaul
Estimated Cash Outflow Probability Assessment
 $200 10%
450 30%
600 50%
750 10%
How much should Angela Contreras deposit today in an account earning 6%, compounded
annually, so that she will have enough money on hand in 2 years to pay for the overhaul?
(Round the computation for expected cash flow to 0 decimal places and the final answer to 2
decimal places, e.g. 250.25. Hint: Use tables in text.)
Deposit amount $471.70

E6-21

Estimate Probabilit
d y Expected
Cash Assessme Cash
Outflow × nt = Flow Present Value
$200 10% $20
450 30% 135 × PV
600 50% 300 Factor
750 10% 75 n = 2, i = 6%
$530 × 0.89 $471.70

*****************************************************************************
********

E6-22

(Fair Value Estimate)

Killroy Company owns a trade name that was purchased in an acquisition of McClellan
Company. The trade name has a book value of $3,500,000, but according to IFRS, it is assessed
for impairment on an annual basis. To perform this impairment test, Killroy must estimate the
fair value of the trade name. (You will learn more about intangible asset impairments in Chapter
12.) It has developed the following cash flow estimates related to the trade name based on
internal information. Each cash flow estimate reflects Killroy's estimate of annual cash flows
over the next 8 years. The trade name is assumed to have no residual value after the 8 years.
(Assume the cash flows occur at the end of each year.)
Cash Flow
Probability Assessment
Estimate
$380,000 20%
 630,000 50%
750,000 30%
What is the estimated fair value of the trade name? Killroy determines that the appropriate
discount rate for this estimation is 8%. (Round answer to zero decimal places, e.g. 2,250,250.)
$3,539,930
Is the estimate developed above a Level 1 or Level 3 fair value estimate?
Level 3

E6-22

Estimate Probabilit
d y Expected
Cash Assessme Cash
Outflow × nt = Flow Present Value
$380,000 20% $76,000
630,000 50% 315,000 × Factor
750,000 30% 225,000 n = 8, i = 8%
$616,000 × 5.74664 $3,539,930
The fair value estimate of the trade name exceeds the carrying value; thus, no impairment is
recorded.
This fair value is based on unobservable inputs—Killroy’s own data on the expected future cash
flows associated with the trade name. This fair value estimate is considered Level 3.
*****************************************************************************
********

E6-1

Correct.
(Using Interest Tables)
For each of the following cases, indicate (a) to what rate columns, and (b) to what number of
periods you would refer in looking up the interest factor.
1. In a future value of 1 table
Number of
Years Compounde (a) Rate of
Annual Rate Invested d Interest (b) Number of Periods
a. 9% 9 Annually 9% 9
b. 8% 5 Quarterly 2% 20
c. 10% 15 Semiannually 5% 30
2. In a present value of an annuity of 1 table
Annual Number of Number Frequency (a) Rate of (b) Number of Periods
Rate Years of Rents of Rents Interest
 Involved
Involved
a. 9% 25 25 Annually 9% 25
b. 8% 15 30 Semiannually 4% 30
c. 12% 7 28 Quarterly 3% 28
*****************************************************************************
********

E6-2

Correct.
(Simple and Compound Interest Computations)
Sue Ang invests $30,000 at 8% annual interest, leaving the money invested without withdrawing
any of the interest for 8 years. At the end of the 8 years, Sue withdrew the accumulated amount
of money.
(a) Compute the amount Sue would withdraw assuming the investment earns simple interest.

$ 49200
(b) Compute the amount Sue would withdraw assuming the investment earns interest
compounded annually. (Round to 2 decimal places, e.g. 25,250.25. Hint: Use tables in
text.)

$ 55527.90
(c) Compute the amount Sue would withdraw assuming the investment earns interest
compounded semiannually. (Round to 2 decimal places, e.g. 25,250.25. Hint: Use tables in
text.)

$ 56189.40

E6-2

Simple interest of $2,400 ($30,000 × 8%) per year ×

(a) $19,200
8
Principal 30,000
Total withdrawn $49,200
(b) Interest compounded annually-Future value of
1 x 8% for 8 periods 1.85093
× $30,000
Total withdrawn $55,527.90
(c) Interest compounded semiannualy-Future
 value of 1 x 4% for 16 periods 1.87298
× $30,000
Total withdrawn $56,189.40

*****************************************************************************
********

E6-3

Correct.
(Computation of Future Values and Present Values)
Using the appropriate interest table, answer each of the following questions. (Each case is
independent of the others.)
(a) What is the future value of €9,000 at the end of 5 periods at 8% compounded interest?
(Round answer to 2 decimal places, e.g. 10,250.25.)

€ 13223.97
(b) What is the present value of €9,000 due 8 periods hence, discounted at 11%? (Round
answer to 2 decimal places, e.g. 5,250.25.)

€ 3905.37
(c) What is the future value of 15 periodic payments of €9,000 each made at the end of each
period and compounded at 10%? (Round answer to 2 decimal places, e.g. 100,250.25.)

€ 285952.34
(d) What is the present value of €9,000 to be received at the end of each of 20 periods,
discounted at 5% compound interest? (Round answer to 2 decimal places, e.g. 105,550.25.)

€ 112159.89

E6-3

(a) €9,000 × 1.46933 = €13,223.97

(b) €9,000 × 0.43393 = €3,905.37
(c) €9,000 × 31.77248 = €285,952.32
(d) €9,000 × 12.46221 = €112,159.89
*****************************************************************************
********

E6-5

Correct.
(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. (Round answers to 2 decimal places, e.g.
10,250.25.)
(a) $50,000 receivable at the end of each period for 8 periods compounded at 12%.

$ 248381.99
(b) $50,000 payments to be made at the end of each period for 16 periods at 9%.

$ 415627.91
(c) $50,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.

$ $76,940.79

E6-5

(a) $50,000 × 4.96764 = $248,382.00

(b) $50,000 × 8.31256 = $415,628.00
(c) $50,000 × 3.03735 × 0.50663 = $76,940.63
or
(5.65022 - 4.11141) × $50,000 = $76,940.50 (difference due to rounding)
*****************************************************************************
********

E6-6

Correct.
(Future Value and Present Value Problems)
Presented below are three unrelated situations (000 omitted). (Hint: Use tables in text.)
(a) Li Chang Company recently signed a lease for a new office building, for a lease period of 10
years. Under the lease agreement, a security deposit of ¥1,200,000 is made, with the deposit
to be returned at the expiration of the lease, with interest compounded at 10% per year.
What amount will the company receive at the time the lease expires?

¥ 3112490.95
(b) Ron Wu Corporation, having recently issued a ₩20 million, 15-year bond issue, is
committed to make annual sinking fund deposits of ₩620,000. The deposits are made on
 the last day of each year and yield a return of 10%. Will the fund at the end of 15 years be
sufficient to retire the bonds? If not, what will the deficiency be? (Round answers to 2
decimal places, e.g. 100,250.20. If bond is deficient enter amount with either a - sign
preceding the number or in (parenthesis).)

no Excess (deficiency) ₩ -301061.35

(c) Under the terms of his salary agreement, president Juan Rivera has an option of receiving
either an immediate bonus of R$40,000, or a deferred bonus of R$75,000 payable in 10
years. Ignoring tax considerations, and assuming a relevant interest rate of 8%, which form
of settlement should Rivera accept?

Accept bonus now

E6-6

(a) Future value of ¥1,200,000 @ 10% for 10 years

(¥1,200,000 × 2.59374) = ¥3,112,488

Future value of an ordinary annuity of ₩620,000 at 10% for 15 years (₩620,000 ×

(b)
31.77248) = ₩19,698,937.60
Deficiency (₩20,000,000 - ₩19,698,937.60) = (₩301,062.40)

(c) R$75,000 discounted at 8% for 10 years:

R R$75,000 × 0.46319 = R$34,739.25

Accept the bonus now. (Also consider whether the 8% is an appropriate discount rate since
the president can probably earn compound interest at a higher rate without too much
additional risk.)

*****************************************************************************
********

E6-7

Correct.
(Computation of Bond Prices)
What would you pay for a $100,000 debenture bond that matures in 15 years and pays $10,000 a
year in interest if you wanted to earn a yield of: (Round the results of computations to 2
decimal places, e.g. 12,250.25 and use the rounded amount to calculate the final answer.
Round the final answer to 2 decimal places, e.g. 30,250.25. Hint: Use tables in text.)
(a) 8%?

$ $117,118.80
(b) 10%?
 $ $99,999.80
(c) 12%?

$ $86,378.60

E6-7

(a) $100,000 × 0.31524 = $31,524.00

+ $10,000 × 8.55948 = 85,594.80
$117,118.80
(b) $100,000 × 0.23939 = $23,939.00
+ $10,000 × 7.60608 = 76,060.80
$99,999.80
The answer should be $100,000; the above computation is off $.20 due to rounding.
(c) $100,000 × 0.18270 = $18,270.00
+ $10,000 × 6.81086 = 68,108.60
$86,378.60

*****************************************************************************
********

E6-10

Correct.
(Unknown Periods and Unknown Interest Rate)
Consider the following independent situations. (Hint: Use tables in text Round answers to 0
decimal places, eg 15%.)
(a) R. Chopra wishes to become a millionaire. His money market fund has a balance of
$148,644 and has a guaranteed interest rate of 10%. How many years must Chopra leave
that balance in the fund in order to get his desired $1,000,000?

20 years
(b) Assume that Elvira Lehman desires to accumulate $1 million in 15 years using her money
market fund balance of $239,392. At what interest rate must Elvira's investment compound
annually?

10 %

E6-10
(a) The number of interest periods is calculated by first dividing the future value of $1,000,000
by $148,644, which is 6.72748–the value $1.00 would accumulate to at 10% for the
unknown number of interest periods. The factor 6.72748 or its approximate is then located
in the Future value of 1 Table by reading down the 10% column to the 20-period line; thus,
20 is the unknown number of years Chopra must wait to become a millionaire.

(b) The unknown interest rate is calculated by first dividing the future value of $1,000,000 by
the present investment of $239,392, which is 4.17725–the amount $1.00 would accumulate
to in 15 years at an unknown interest rate. The factor or its approximate is then located in
the Future value of 1 Table by reading across the 15-period line to the 10% column; thus,
10% is the interest rate Elvira must earn on her investment to become a millionaire.

*****************************************************************************
********

E6-12

Correct.
(Analysis of Alternatives)
Brubaker Inc., a manufacturer of high-sugar, low-sodium, low-cholesterol TV dinners, would
like to increase its market share in the Sunbelt. In order to do so, Brubaker has decided to locate
a new factory in the Panama City area. Brubaker 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 $610,000, useful life 25 years.
Building B: Lease for 25 years with annual lease payments of $70,000 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 $6,000. Rental payments will be
received at the end of each year. The Brubaker Inc. has no aversion to being a landlord.
In which building would you recommend that Brubaker Inc. locate, assuming a 12% cost of
funds? (Hint: Use tables in text.)
Building C

E6-12

Building A: PV = $610,000
Building B:
Rent × (PV of annuity due of 25 periods at 12%) = PV
$70,000 × 8.78432 = PV
$614,902.40 = PV
Building C:
Rent × (PV of ordinary annuity of 25 periods at 12%) = PV
 $6,000 × 7.84314 = PV
$47,058.84 = PV
Cash purchase price of $650,000.00
PV of rental income (47,058.84)
Net present value $602,941.16
Answer: Lease Building C since its present value of its net cost is the smallest.
*****************************************************************************
********