Suppose a lease is offered for four years, with lease payments of $500,000 paid at the end of each year. The lessee's borrowing rate is 8 percent. The present value of the lease payments is closest to:

Question

Quizplus · Accepted Answer

The present value of an annuity can be calculated using the formula: PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the payment amount, r is the interest rate, and n is the number of periods. Plugging in the values: PV = $500,000 × [(1 - (1 + 0.08)^-4) / 0.08] = $1,656,063.

Suppose a Lease Is Offered for Four Years, with Lease