Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2015 it leased equipment with a cost of $320,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. Silver Points incremental borrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is $520,000, and the rate implicit in the lease is 8%, which is known to Silver Point Co. What is the amount of interest expense recorded by Silver Point Co. for the year ended December 31, 2015?

PV Annuity Due PV Ordinary Annuity PV Single Sum

8%, 5 periods 4.31213 3.99271 .68508

10%, 5 periods 4.16986 3.79079 .62092

a.$46,800

b.$37,440

c.$41,600

d.$52,000

I know the solution to this problem (below) , but I just don't understand how the components were reached. Where did the (.90) come from and why was PV of ordinary annuity used instead of ordinary annuity due?

($520,000 x.90) /3.99271 = $117,214

$117,214 x3.99271 = $468,000

$468,000 x.08 = $37,440.