Question

One of the departments at Yolo Industries has entered into a 9 year lease for a piece of equipment. The annual payment under the lease will be $3,800, with payments being made at the beginning of each year. If the discount rate is 12%, the present value of the lease payments is closest to (Ignore income taxes.): Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Answer 1

Answer:

PV= $22,677.03

Explanation:

Giving the following formula:

Number of periods (n)= 9 years

Annual payment (A)= $3,800

Discount rate (i)= 12%

First, we will calculate the future value of the payments using the following formula:

FV= {A*[(1+i)^n-1]}/i + {[A*(1+i)^n]-A}

FV= {3,800*[(1.12^9) - 1]} / 0.12 + {[3,800*(1.12^9)] - 3,800}

FV= 56,147.49 + 6,737.7

FV= $62,885.19

Now, the present value:

PV= FV / (1 + i)^n

PV= 62,885.19 / (1.12^9)

PV= $22,677.03