Question

Suddeth Corporation has entered into a 6 year lease for a building it will use as a warehouse. The annual payment under the lease will be $2,468. The first payment will be at the end of the current year and all subsequent payments will be made at year-ends. If the discount rate is 5%, the present value of the lease payments is closest to (Ignore income taxes.):

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided.
a. $14,103
b. $14,808
c. $12,528
d. $11,050

Answer 1

c. $12,527

Step-by-step explanation:

Year Lease payment PV factor at 5% PV of lease payment

1 $2,468 0.952 $2,350

2 $2,468 0.907 $2,238

3 $2,468 0.864 $2,132

4 $2,468 0.823 $2,031

5 $2,468 0.784 $1,935

6 $2,468 0.746 $1,841

Total $12,527