Air Atlantic (AA) has been offered a 3-year old jet airliner under a 12-year lease arrangement. The lease requires AA to make annual lease payments of $500,000 at the beginning of each of the next 12 years. Determine the present value of the lease payments if the opportunity cost of funds is 14 percent.

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andromache andromache · Answer 1 · 2020-03-22T06:01:06+01:00

Answer:

$3,226,366.51

Explanation:

We use the present value formula so that the approximate value could come. It is shown in the attachment below:

Given that,

Future value = $0

Rate of interest = 14%

NPER = 12 years

PMT = $500,000

The formula is shown below:

= PV(Rate;NPER;PMT;FV;type)

So, after solving this, the present value is $3,226,366.51

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abiolataiwo2015 abiolataiwo2015 · Answer 2 · 2021-12-31T13:11:23+01:00

The present value of the lease payments if the opportunity cost of funds is 14 percent is:$3,226,367.

Based on the information given we would make use of financial calculator to find the present value (PV) by using this formula

PV=(Rate;NPER;PMT;FV;type)

Where:

Future value=$0

Present value=?

Rate of interest = 14%

NPER =12 years

PMT =$500,000

Hence:

Present value=$3,226,367

Inconclusion the present value of the lease payments if the opportunity cost of funds is 14 percent is:$3,226,367.

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