(Ignore income taxes in this problem.) Noe Corporation has entered into a 8 year lease for a building it will use as a warehouse. The annual payment under the lease will be $2,520. The first payment will be at the end of the current year and all subsequent payments will be made at year-ends. What is the present value of the lease payments if the discount rate is 12%?
A) $8,142
B) $12,519
C) $20,160
D) $18,000

Question

Quizplus · Accepted Answer

The present value of an annuity formula is used to calculate the present value of the lease payments: PV = Pmt × [(1 - (1 + r)^-n) / r]. Plugging in the values: PV = $2,520 × [(1 - (1 + 0.12)^-8) / 0.12] = $12,519.

(Ignore Income Taxes in This Problem