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(Solved): Time Line Of Cash Flow And The Present Value Of An Annuity Due. Mauer Mining Company Leases A Specia ...

Time line of cash flow and the present value of an annuity due.

Mauer Mining Company leases a special drilling press with annual payments of $130,000.

The contract calls for rent payments at the beginning of each year for a minimum of 88 years. Mauer Mining can buy a similar drill for ?$790,000? but it will need to borrow the funds at 8?%.

Determine the present value of the lease payments at 8?%.

Should Mauer Mining lease or buy this? drill?

Expert Answer

Present Value Of An Annuity = C*[1-(1+i)^-n]/i] Where, C= Cash Flow per period i = interest rate
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