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John Moffat.
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Mujtaba
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1.A company has agreed to lease a machine for a period of 8 years,with equal annual payments payable at the start of each year.
The NPV of the agreement at a rate of 10% is $ 52000.What is the annual lease payment?
1.$8208
2.$13444
3.$8862
4.$9747
Correct answer $8862
please show working. Thanks
John Moffat
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The first payment is at time 0 (because it is payable at the start of the year). So if the amount is X, then the present value is X.
It is followed by 7 more payments from time 1 to time 7. If the payment is X per year, then the PV is X x the 7 year annuity factory, which is X x 4.868
So the total PV = X + 4.686X = 5.868X which must equal 52,000.
So X = 52,000/5.868 = 8862
Mujtaba
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Thank you so much .
John Moffat
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You are welcome 🙂
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