The Solution to This Problem Requires Time Value of Money

question 182

Multiple Choice

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Cory and Ginger want to buy an airplane.They find one that will cost $200,000.They must pay 10% down, and can get the balance financed with a 10 year loan at 7% interest and annual payments.What is their annual payment?

• A) $26,826
• B) $25,626
• C) $24,457
• D) $19,260

---

Definitions:

Real Option

The value of additional decision-making opportunities available to an investor or company once an initial investment has been made.

Financial Results

The summary of a company's financial performance and position, typically reported on a quarterly and annual basis.

Risk-Adjusted Rates

In capital budgeting, a rate used in place of the cost of capital to reflect especially risky projects.

Interest Rate

The amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.