Answer: the total rent expense be for the entire 7-year lease is $713476
Step-by-step explanation:
The rate at which the rent increases each year is in geometric progression. The formula for determining the sum of n terms, Sn of a geometric sequence is expressed as
Sn = (ar^n - 1)/(r - 1)
Where
n represents the number of term(years) in the sequence.
a represents the first term in the sequence.
r represents the common ratio.
From the information given,
a = $85000
r = 1 + 6/100 = 1.06
n = 7
Therefore, the sum of the first 7 terms(7 year lease), S7 is
S7 = (85000 × 1.06^(7) - 1)/1.06 - 1
S7 = (85000 × 1.06^(7) - 1)/0.06
S7 = 42808.57/0.06
S7 = $713476
