Answer:
$311,557.14
Explanation:
Since the first payment being made today, the relevant formula to us the formula for calculating the present value (PV) of annuity due given as follows:
PV = P × [{1 - [1 ÷ (1+r)]^n} ÷ r] × (1+r) .................................. (1)
Where ;
PV = Present value or the sales amount to ask for =?
P = Annual payment = $26,000
r = interest rate = 7.5%, or 0.075
n = number of years = 25
Substituting the values into equation (1) above, we have:
PV = 26,000 × [{1 - [1 ÷ (1 + 0.075)]^25} ÷ 0.075] × (1 + 0.075)
= 26,000 × [{1 - [1 ÷ (1.075)]^25} ÷ 0.075] × (1.075)
= 26,000 × 11.1469458606622 × 1.075
PV = $311,557.14
Therefore, you should ask for $311,557.14 if you decide to sell it.
Answer: $311,557.14
Explanation:
GIVEN the following ;
Payment per period(PMT) = $26,000
Period(n) = 25 years
Rate of return (r) = 7.5% = 0.075
Asking price, if one decides to sell:
Using the formula for present value of annuity due;
Present Value (PV) :
PMT ×[ (1 - (1 + r) ^-n) ÷ r] × (1 + r)
$26,000 × [ (1 - (1 + 0.075)^-25) ÷ 0.075] × (1 + 0.075)
$26,000 × [ (1 - (1.075^-25)) ÷ 0.075] × 1.075
$26,000 × [11.146945860662] ×1.075
=$311557.13680550
=
Present Value if one decides to sell will be : $311,557.14 (2 decimal places).
