This question was answered below with this; - The answer I got was $7066.27. Can you use the present value found in Part 1 A, 12% discount rate until year 4. I don't understand why we are using year 5 and year 0 when the question asks Year 1 through Year 4.

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To calculate the equivalent annual lease payments, we need to first find the present value of all the lease payments over the four-year period. We can use the formula for present value of an annuity

PV = Payment / (1 + r)^n

where PV is the present value, Payment is the annual payment, r is the discount rate, and n is the number of years.

Using the given payments and the minimum discount rate of 12%, we can find the present value of each payment and add them up to get the total present value of the lease payments:

PV = 3000/(1+0.12)^1 + 6000/(1+0.12)^2 + 7000/(1+0.12)^3 + 7000/(1+0.12)^4 + 4000/(1+0.12)^5

Simplifying this expression, we get:

PV = 3000/1.12 + 6000/1.12^2 + 7000/1.12^3 + 7000/1.12^4 + 4000/1.12^5

Calculating this on a calculator or spreadsheet, we get PV = $22,331.45

Next, to find the equivalent annual lease payment, we need to find the payment that has the same present value as the sum of the lease payments over the four-year period. This can be done using the formula for the present value of a perpetuity:

PV = Payment / r

where r is the discount rate and Payment is the equivalent annual payment.

Rearranging this equation, we get:

Payment = PV * r

Substituting the values we know, we get:

Payment = $22,331.45 * 0.12

Simplifying this expression, we get:

Payment = $2,679.74

Therefore, the equivalent annual lease payment is $2,679.74 per year.

To find the equivalent annual lease payments for years 1 through 4, we can simply add up the present values of the lease payments for those years and use the same formula for the present value of a perpetuity. So, we have:

Equivalent annual lease payments for year 1 through 4 = (6000/(1+0.12)^1 + 7000/(1+0.12)^2 + 7000/(1+0.12)^3 + 4000/(1+0.12)^4) * 0.12

Simplifying this expression, we get:

Equivalent annual lease payments for year 1 through 4 = $19,162.53

Therefore, the equivalent annual lease payments for years 1 through 4 is $19,162.53 per year.

Answer rating: 100% (QA)

the corrected calculation 1 Calculate the present value of the lease payments for years 1 through 4 ... View the full answer