42410 pv 1042365 5 difference due to rounding cost

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Unformatted text preview: 5 = $6,449,581 Since the present value of the cost for leasing the facilities, $6,449,581, is less than the cost for purchasing the facilities, $7,200,000, McDowell Enterprises should lease the facilities. (b) Time diagram: i = 11% PV OA = ? R= $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 0 1 2 3 6 7 n=9 8 9 Formula: PV OA = R (PVF OAn, i) PV OA = $15,000 (PVF OA9, 11%) PV OA = $15,000 (5.53705) PV OA = $83,056 The fair value of the note is $83,056. (c) Time diagram: Amount paid = $792,000 0 10 30 Amount paid = $800,000 Cash discount = $800,000 (1%) = $8,000 Net payment = $800,000 $8,000 = $792,000 If the company decides not to take the cash discount, then the company can use the $792,000 for an additional 20 days. The implied interest rate for postponing the payment can be calculated as follows: (i) Implied interest for the period from the end of disco...
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This note was uploaded on 01/20/2013 for the course ACCOUNTING 301 taught by Professor Gramlich during the Fall '11 term at University of Southern Maine.

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