Question

A construction company agrred to lease payments of $561.39 on construction equipment to be made at the end of every 3 months for 6.25 years. financing is at 11% compounded quarterly. what is the value of the original lease contract?

Answer 1

To calculate the original lease contract value for a construction equipment lease with quarterly payments of $561.39 for 6.25 years at 11% interest compounded quarterly, use the present value of annuity formula with the given parameters.

Step-by-step explanation:

The value of the original lease contract for construction equipment can be calculated using the formula for the present value of an annuity due to the payments being made at regular intervals. Given that the payments are $561.39 every 3 months for 6.25 years and the interest rate is 11% compounded quarterly, we can calculate the original lease contract value (P) using the present value of annuity formula:

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

Where PMT is the payment amount per period ($561.39), r is the periodic interest rate (0.11/4 = 0.0275), and n is the total number of payments (6.25 * 4 = 25 payments). Substituting the values we get:

P = 561.39 * [1 - (1 + 0.0275)^(-25)] / 0.0275

After calculating, the value of P, which is the original lease contract value, will be obtained.