Example: Computing Present Value in Annuities

The Furros Company purchased equipment providing an annual savings of $20,000 over 10 years. Assuming an annual discount rate of 10%, what is the present value of the savings using an ordinary annuity and an annuity due?

Cost Savings for a Present-Value Ordinary Annuity

Cost Savings for a Present-Value Annuity Due in a Leasing Agreement

To	Press		Display
Set all variables to defaults	& } !	RST	0.00
Enter number of payments	10 ,	N=	10.001
Enter interest rate per payment period	10 -	I/Y=	10.001
Enter payment	20000 S /	PMT=	-20,000.001
Compute present value (ordinary annuity)	C .	PV=	122,891.347
Set beginning-of-period payments	& ] & V	BGN
Return to calculator mode	& U		0.00
Compute present value (annuity due)	C .	PV=	135,180.487

Answer: The present value of the savings is $122,891.34 with an ordinary annuity and $135,180.48 with an annuity due.