Rick\'s Repairs, Inc. is considering renting a new shop. The landlord has offere

Question

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 0.91 2 0.83 3 0.75 The landlord offered a 3-year lease with the rent payments as follows: $16,000 at the end of the first year, $24,000 at the end of the second year, and $20,000 at the end of the third year. The present value of the rent payments over the life of the lease is:

Explanation / Answer

Year rent payments PV factor PV cash flows

1 16000 0.91 14560

2 24000 0.83 19920

3 20000 0.75 15000

Total PV cash flows 49480.

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