The Jenkins Corporation has purchased an executive jet The c

The Jenkins Corporation has purchased an executive jet. The company has agreed to pay $200,000 per year for the next 10 years and an additional $1,000,000 at the end of the 10th year. The seller of the jet is charging 6% annual interest. Determine the liability that would be recorded by Jenkins. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.)

Solution

PV of transaction = $ 200,000 x Present value of annuity factor(6%,10) + $ 10,00,000 x Present value of discount factor(6%,10)

=200,000*7.36+10,00,000*0.558

$20,30,412.19(Approx).