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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 ( to the nearst $)?
I’m totally confuse about this question how we can solve this anybody help me plzThe PV of the repayments must equal 52,000.
If the payment is X per year, then since the first payment is immediate then PV of this payment is X.
The present value of the remaining 7 payments is X times the annuity factor for 7 years at 10%.If you add the two together then you should be able to calculate X without difficulty (since the total must be equal to 52,000)
Thank you Sir for helping but I’m still not able to find the value of first payment help me Pzl…..
The annuity factor for 7 years at 10% is 4.868 (from the tables).
So if the payment is X per year, the PV of the first payment is X and the PV of the other 7 payments is 4.868X
So the total PV is X + 4.868X = 5.868X
This must be equal to 52,000.
So now you should be able to calculate X 🙂
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