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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
The 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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