A Filipino contractor in the USA plans to purchase a new office building costing P1,000,000. He agrees to pay P150,000 annually for 20 years. At the end of this time, he estimates that he can resell the building for at least P600,000. Instead of buying the building he can lease it for P140,000 a year. All payments are to. be made at the beginning of each year and the rate of interest is 10%. Draw the cashflow diagram for both situations. a) What is the present worth of the purchasing price? b) What is the present worth of the leasing price? c) Should the contractor purchase or lease the building?
A Filipino contractor in the USA plans to purchase a new office building costing P1,000,000. He agrees to pay P150,000 annually for 20 years. At the end of this time, he estimates that he can resell the building for at least P600,000. Instead of buying the building he can lease it for P140,000 a year. All payments are to. be made at the beginning of each year and the rate of interest is 10%. Draw the cashflow diagram for both situations. a) What is the present worth of the purchasing price? b) What is the present worth of the leasing price? c) Should the contractor purchase or lease the building?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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*For every problem, provide the Given, Required, and Solution. Show the formula to be used and
show how values will be substituted.
*Do not round off in between calculations. Rounding off must only be done on the final answer
Transcribed Image Text:1. A Filipino contractor in the USA plans to purchase a new office building costing P1,000,000. He
agrees to pay P150,000 annually for 20 years. At the end of this time, he estimates that he can
resell the building for at least P600,000. Instead of buying the building he can lease it for P140,000
a year. All payments are to. be made at the beginning of each year and the rate of interest is 10%.
Draw the cashflow diagram for both situations.
a) What is the present worth of the purchasing price?
b) What is the present worth of the leasing price?
c) Should the contractor purchase or lease the building?
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