The Wellington family has an offer to sell a plot of land to Land Developers, In

Question

The Wellington family has an offer to sell a plot of land to Land Developers, Inc. (LDI) for $1,000,000.

However, to allow LDI time to generate the required payment from its operations, the Wellingtons must agree to delay collection of the money for a 4 year period. The Wellingtons have an alternative offer to sell the land to Sunshine Properties. Sunshine has the cash available to make an immediate cash payment for the property. Assuming a 10% required rate of return, at what price would Sunshine be required pay to in order to match LDI's offer? (Use the present value tables if needed: http://www.principlesofaccounting.com/ART/fv.pv.tables/pvof1.htm and http://www.principlesofaccounting.com/ART/fv.pv.tables/pvofordinaryannuity.htm

a. $3,169,865.

b. $1,000,000.

c. $683,013.

d. $751,315.

Explanation / Answer

Present value of future payment = Future value * PVF @10%,4

                                               = 1,000,000 * .68301

                                                = $ 683,013.46

correct option is "C" - 683,013

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