At the end of 2016, LeaseCo leases identical equipment, agreeing to pay $500,000 rent each year...
At the end of 2016, LeaseCo leases identical equipment, agreeing to pay $500,000 rent each year for the next 10 years. If the interest rate is 12%, then the present value of 10 payments of $500,000 discounted at 12% is $2,825,112 ($500,000 × 5.650223). Where does the 5.650223 come from? What did I forget to do?
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=500,000[1-(1.12)^-10]/0.12
=500,000*5.650223
=$2825112(Approx).
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