Hello John,
Please help me with the following question.
-A lease payment has an NPV of ($26,496) at a rate of 8%. The lease involves an immediate down payment of $10,000 followed by 4 equal annual payments.
What is the amount of the annual payment?
1. The answer is $4981.
2. In the kit, there is only the working with no explanation. Please help me on that.
Thanks
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5y ago#1The PV of all the payments is equal to 26,496.
The PV of the immediate payment is 10,000, therefore the PV of the 4 equal payments = 16,496.
Since the equal payments are a 4 year annuity, the amount of each payment is therefore 16,496 divided by the 4 year annuity factor at 8%.
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