Question

foutz corporation has entered into a 8 year lease for a piece of equipment. the annual payment under the lease will be $3,600, with payments being made at the beginning of each year. if the discount rate is 17%, the present value of the lease payments is closest

Answer 1

Answer:

Present value of lease payments is $17720.57

Explanation:

The value of lease payments can be treated as an annuity due as the lease payments qualify the criteria of annuity- the payment amount is constant, is paid after a constant interval of time and the time is definite and known.

So, we will use the formula for the present value of annuity due as the payments are being made at the start of the period. The formula for the present value of an annuity due is attached.

PV of lease = 3600 + 3600 * [ {1 - (1 + 0.17)^-(8-1)} / 0.17 ]

PV of lease = $17720.56848 rounded off to $17720.57