A firm leases equipment under a capital lease (analogous to an installment purchase) that calls for twelve semiannual payments of $39,014.40. The first payment is due at the inception of the lease. The annual rate on the lease is 6%. What is the value of the leased asset at inception of the lease?
A)$388,349.
B)$400,000.
C)$454,128.
D)$440,082.PVAD = $39,014.40 x 10.25262 * = $400,000 *PVAD of $1: n=12; i=3%

Question

Quizplus · Accepted Answer

Using the PVAD formula: PVAD = PMT x [1 - 1/(1 + r)^n]/r
where PMT = $39,014.40, r = 3% (semiannual rate), and n = 12 (number of semiannual periods)
PVAD = $39,014.40 x [1 - 1/(1 + 0.03)^12]/0.03
PVAD = $39,014.40 x 10.25262
PVAD = $400,000
Therefore, the value of the leased asset at inception of the lease is $400,000, which is option B.

A Firm Leases Equipment Under a Capital Lease (Analogous to an Installment