Question

Your landscaping company can lease a truck for $7,800 a year (paid at year-end) for 6 years. It can instead buy the truck for $38,000. The truck will be valueless after 6 years. The interest rate your company can earn on its funds is 7%. What is the present value of the cost of leasing?

Answer 1

3717.6140

Step-by-step explanation:

Calculation for the present value of the cost of leasing

Using this formula

Present value=Lease amount/Interest rate×(1-1/Increase interest rate^Numbers of Years)

Let plug in the formula

Present value=7,800/7%×(1-1/1.07^6)

Present value=11.142×0.3336577

Present value=3717.6140

Therefore the present value will be 3717.6140