Question

(Ignore income taxes in this problem.) Latting Corporation has entered into a seven-year lease for a building it will use as a warehouse. The annual payment under the lease will be $4,781. The first payment will be at the end of the current year and all subsequent payments will be made at year-end. If the discount rate is 6 percent, the present value of the lease payments is closest to:
a. $22,257
b. $31,573
c. $26,688
d. $33,467

Answer 1

Answer:

C. $26,689.46

Explanation:

Computation of the present value is

Annual payment × (PVIFA of 7 years, 6%)

Where PVIFA = (1-(1+r)^-n)/r

Where n= Number of period

r= Rate applied

PVIFA = 5.5824 (Kindly check attached picture for explanation

= $4,781 × 5.5824

=$26,689.46