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A lease agreement has an NPV of ($26.496) at a rate of 8%. The lease involves an immediate down payment of $10,000 followed by 4 equal annual payments. What is the amount of the annual payment?

Question

A lease agreement has an NPV of (26.496)atarateof826.496) at a rate of 8%. The lease involves an immediate down payment of 10,000 followed by 4 equal annual payments.

What is the amount of the annual payment?

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Solution

To solve this problem, we need to use the formula for the present value of an annuity. The formula is:

PV = PMT * [(1 - (1 + r)^-n) / r]

Where:

  • PV is the present value, which is the NPV of the lease plus the down payment. In this case, it's -26,496+26,496 + 10,000 = -$16,496.
  • PMT is the annual payment, which we're trying to find.
  • r is the interest rate, which is 8% or 0.08.
  • n is the number of periods, which is 4 years in this case.

We can rearrange the formula to solve for PMT:

PMT = PV / [(1 - (1 + r)^-n) / r]

Substituting the given values:

PMT = -$16,496 / [(1 - (1 + 0.08)^-4) / 0.08]

Now, we just need to calculate the right side of the equation to find the annual payment.

This problem has been solved

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