The present value of the lease payments is calculated as an annuity due while the present value of the tax shield on the lease payments is calculated as an ordinary annuity

Question

Quizplus · Accepted Answer

This statement is true. The present value of lease payments is calculated as an annuity due because the payments are made at the beginning of each period. On the other hand, the present value of the tax shield on the lease payments is calculated as an ordinary annuity because the tax savings are received at the end of each period.

The Present Value of the Lease Payments Is Calculated as an Annuity