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Please sir I have struggled to solve this question seem not moving: a company has agreed to lease a machine for a period of 8years with equal annual payments at the start of each year. The NPV of the agreement at a rate of 10% is 52000, what is the annual payment
I am puzzled as to why you are attempting questions for which you do not have an answer. You should be using a Revision Kit from one of the ACCA approved publishers, because they have answer and explanations 🙂
If the annual payment is X per year, then there is a payment of X at time 0, and then X for each of the years 1 to 7 (because the payments are at the start of each year).
You will know from my free lectures that the PV of X at time 0 is X, and that the PV of X per year for years 1 to 7 is X x the 7 year annuity factor for 7 years at 10%.
Therefore X + (X x annuity factor for 7 years at 10%) = $52,000
Therefore X x (1 + annuity factor) = 52,000
Therefore X = 52,000 / (1 + 7 year annuity factor at 10%)
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