Red Sun Rising Corp. has just signed a lease for its new manufacturing facility. The lease agreement calls for annual payments of $1,050,000 for 15 years with the first payment due today. If the interest rate is 3.23 percent, what is the value of this liability today

$12,727,043.35

Explanation:

The value of the lease payments today can be ascertained using the formula for the present value of an annuity due shown below:

PV=annual payments*(1-(1+r)^-n/r*(1+r)

annual payments=$1,050,000

r=interest rate=3.23%

n=number of annual payments in 15 years=15

PV=$1,050,000*(1-(1+3.23%)^-15/3.23%*(1+3.23%)

PV=$1,050,000*(1-0.62074194 )/3.23%*1.0323

PV=$1,050,000*0.37925806/ 3.23%*1.0323

PV=$12,727,043.35  

answer; sensory adaptation;

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.