Domebo Corporation has entered into a 7 year lease for a piece of equipment. The annual payment under the lease will be $3,400, with payments being made at the beginning of each year. If the discount rate is 14%, the present value of the lease payments is closest to (Ignore income taxes.):Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. (Round your intermediate calculations to 3 decimal places.)
A) $9,511
B) $16,623
C) $20,877
D) $23,800

Question

Quizplus · Accepted Answer

Using the PV of an annuity table (Exhibit 14B-1), and the given annual payment of $3,400, and discount rate of 14%, we can find the present value factor for 7 years to be 4.868.

Present value = Annual payment x Present value factor 
Present value = $3,400 x 4.868 
Present value = $16,625.20

Rounding this to the nearest dollar gives us a present value of $16,623, which is closest to option B.

Domebo Corporation Has Entered into a 7 Year Lease for a Piece