On January 1, 2016 Ashley farms least hey Baylor from Agrico company the lease r

Question

On January 1, 2016 Ashley farms least hey Baylor from Agrico company the lease requires Ashley to make $3000 payments on January one of each year for five years beginning in 2016 the interest rate is 12% calculate present value of Ashley's lease payments as of January 1, 2016 On January 1, 2016 Ashley farms least hey Baylor from Agrico company the lease requires Ashley to make $3000 payments on January one of each year for five years beginning in 2016 the interest rate is 12% calculate present value of Ashley's lease payments as of January 1, 2016

Explanation / Answer

Annual Lease payment = $3,000
Payments are made in the beginning of each year
Annual Interest rate = 12%
Number of payment = 5

Present Value of Lease = $3,000 + $3,000/1.12 + $3,000/1.12^2 + $3,000/1.12^3 + $3,000/1.12^4
Present Value of Lease = $3,000 * 1.12 * (1 - (1 / 1.12)^5) / 0.12
Present Value of Lease = $3,000 * 4.03735
Present Value of Lease = $12,112.05

So, present value of Ashley's lease payments is $12,112.05

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