Final answer:
To calculate the present value of the leasing contract's payments at a 12% annual discount rate, the semiannual payments are discounted to their present value using the formula for the present value of an annuity and summing them up.
Step-by-step explanation:
The question is asking to calculate the present value (PV) of a series of semiannual payments under a leasing contract using a discount rate of 12% annually. The calculation involves finding the present value of each payment and summing them to find the total present value. Since payments are semiannual, the annual discount rate must be adjusted to a semiannual rate. The formula for the present value of an annuity would be used in this case, which considers multiple cash flows over time.
We first divide the annual discount rate by two to find the semiannual rate, which is 6% (12% / 2). Then we calculate the present value of each semiannual payment of $103,000 using the formula for the present value of an ordinary annuity. Each of the nine subsequent payments needs to be discounted back to the present, which can be accomplished using the annuity formula. We add the value of the immediate payment since it does not need to be discounted (it's already in present terms).
The calculations would result in the present value of the leasing contract's payment stream. This kind of problem is commonly encountered in finance and business courses when analyzing leases, loans, or investment cash flows.