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annual lease with first four install ments of 120,000, payable in one years time
payments will rise by 4% P.A , money cost of capital in 8%find the PV to nearest 000’s of the last payment made in four years time
Please do not simply set test questions and expect an answer.
You must have an answer in the same book in which you found the question (unless you have been set this question as an assignment) and so you should ask about whatever it is in the answer that you are not clear about. Then I will try and help you.
(If you have been set this as an assignment, then we are not here to do your homework for you 🙂 )You need to calculate the amount of the fourth payment (by inflating the 120,000 for 4 years at 4% p.a., and then discount it for 4 years at 8%.
Have you watched my free lectures? The are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well (including what is needed for this question).
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