Answer:
The present value of the lease is $50,626
Explanation:
A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.
In this question the lease payment of $8,000 per year for ten years paid immediately at a rate of 12% is an advance annuity.
Formula for Present value of advance annuity is as follow
PV of annuity = P +P x [ ( 1- ( 1+ r )^-(n-1) ) / r ]
Where
P = Annual payment = $8,000
r = rate of return = 12%
n = number of years = 10 years
Placing values in the formula
PV of annuity = $8,000 + $8,000 x [ ( 1- ( 1+ 0.12 )^-(10-1) ) / 0.12 ]
PV of Annuity = $50,626
