Rudy Corporation is looking to purchase a building costing $430,000 by paying $6

Question

Rudy Corporation is looking to purchase a building costing $430,000 by paying $65,000 cash on the purchase date, and agreeing to make annual payments for the next seven years. The first payment is due one year after the purchase date. Rudy's incremental borrowing rate is 8%. Each of the annual payments is closest to

a) 82,591

b) 52,143

c) 60,820

d) 70,106

Rudy Corporation is looking to purchase a building costing $430,000 by paying $65,000 cash on the purchase date, and agreeing to make annual payments for the next seven years. The first payment is due one year after the purchase date. Rudy's incremental borrowing rate is 8%. Each of the annual payments is closest to

a) 82,591

b) 52,143

c) 60,820

d) 70,106

Explanation / Answer

Borrowed amount = 430,000 - 65,000 = 365,000

Annual payment = Borrowed amount /PVAF@8%,7

                            = 365,000 / 5.20637

                              = $ 70106.43 (approx 70106)

correct option is "D"

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