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

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Rick's Repairs, Inc

Finance Dec 01, 2020

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

0.90909

0.82645

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

Expert Solution

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".

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