A company plans to lease equipment for $20,000/yr. The first payment will due at the end of the year. The rate of inflation is expected to be 6%. Revenues and other costs are expected to remain constant in real terms. However, labor costs will increase a 1 percent per year in real terms. Lease payments are fixed in nominal terms. The real interest rate is 5%.

What is the NPV, assuming the following annual CFs: - Revenues 150,000 - Labor costs 80,000 - Other costs 40,000

Assume business is expected to continue in perpetuity.

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the lease payments we need to discount the cash flows to t... View the full answer