Thorngate Industrial has negotiated a deferred equipment lease with TechVenture Capital. The lease requires 8 semi-annual payments of $47,500 beginning 18 months from today (i.e., the first payment occurs at the end of period 3, not period 1). Thorngate's cost of capital is 7.25% annually, compounded semi-annually. Calculate the present value of all lease obligations as of today.
Correct Answers
present_value
$324,816.19
Step-by-Step Solution
Present Value of Annuity (ordinary annuity): Payment (PMT): $47,500.00 Rate per period (r): 3.6250% Periods (n): 8 PVA (ordinary) = PMT × [1 − (1+r)^−n] ÷ r PVA = $47,500.00 × [1 − (1+3.6250%)^−8] ÷ 3.6250% PV Factor = 6.838235 PVA (ordinary) = $324,816.19