Suppose a lease is offered for six years, with lease payments of $1 million paid at the end of each year. The lessee's borrowing rate is 10 percent. The present value of the lease payments is closest to:

Question

Quizplus · Accepted Answer

The present value of the lease payments can be calculated using the formula for the present value of an annuity: PV = P * [(1 - (1 + r)^-n) / r], where P is the payment amount, r is the interest rate, and n is the number of periods. Plugging in the given values (P = $1 million, r = 10% or 0.10, n = 6), we get PV = $1 million * [(1 - (1 + 0.10)^-6) / 0.10] = $4.36 million.

Suppose a Lease Is Offered for Six Years, with Lease