You have entered into an agreement for the purchase of land. The agreement specifies that you will take ownership of the land immediately. You have agreed to pay $51,000 today and another $51,000 in three years. Calculate the total cost of the land today, assuming a discount rate of (a) 2%, (b) 4%, or (c) 6% .

You have entered into an agreement for the purchase of land. The agreement specifies that you will take ownership of the land immediately. You have agreed to pay $51,000 today and another $51,000 in three years. Calculate the total cost of the land today, assuming a discount rate of (a) 2%, (b) 4%, or (c) 6% .

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

You have entered into an agreement for the purchase of land. The agreement specifies that
you will take ownership of the land immediately. You have agreed to pay $51, 000 today and
another $51,000 in three years. Calculate the total cost of the land today, assuming a discount
rate of (a) 2%, (b) 4%, or (c) 6%.

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Step 1: Introduction to time value of money

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Step 2: Requirement a (2%)

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Step 3: Requirement b (4%)

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Step 4: Requirement c (6%)

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