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Homework answers / question archive / Rick's Repairs, Inc
Rick's Repairs, Inc. is considering renting a new shop. The landlord has offered a number of alternatives for paying the rent. The present value factors at the company's rate of return are as follows:
Period
Present Value Factor
1
0.90909
2
0.82645
3
0.75131
The landlord offered a 2-year lease with $20,000 to be paid for rent at the end of each year.
The present value of rent payments over the life of the lease is:
Select one:
A. $20,000
B. $33,208
C. $34,711
D. $40,000
Computation of present value of rent payments over the life of the lease:
Present Value of Rent Payments = ($20,000*0.90909)+($20,000*0.82645)
= $18,181.80 + $16,529
Present Value of Rent Payments = $34,710.80 or $34,711
So, the correct option is C "$34,711".