Answered: Present Value of $1 Discounted at…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

An office equipment representative has a machine for sale or lease. If
you buy the machine, the cost is $7,590. If you lease the machine, you
will have to sign a noncancelable lease and make 5 payments of $2,000
each. The first payment will be paid on the first day of the lease. At the
time of the last payment, you will receive title to the machine. The
present value of an ordinary annuity of $1 is as attached:

The interest rate implicit in this lease is approximately:
a. 10%
b. 12%
c. between 10% and 12%
d. 16%

Present Value of $1
Discounted at
Number of Periods
10%
12%
16%
1
0.909
0.893
0.862
1.736
1.690
1.605
2.487
2.402
2.246
3.170
3.037
2.798
3.791
3.605
3.274
N345

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