Unformatted text preview: ing an annual discount rate of 5 percent, what is the present
value of this lease?
-20,000 Future Value
-10,000 EXCEL OUTPUT
79,146.03 LO 1
LO 3 S ME-3 Comparing lease terms
Apple Corporation is deciding between two leases. The first lease is a 5-year
lease and requires Apple to make a $2,000 rental payment at the end of each
month over the life of the lease. The second lease is also a 5-year lease. It
requires Apple to make a lump sum payment of $120,000 at the end of the lease.
Assume that for both leases interest accrues monthly and the appropriate annual
discount rate is 4 percent. Which lease is a better deal in present value terms?
The second lease is a better deal in present value terms (see present value
Present value of first lease
0.04 / 12
-2,000 Future Value
0 EXCEL OUTPUT
Page 2 of 21 END-OF-CHAPTER MATERIAL
Present value of second lease
0.04 / 12
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- Spring '12
- Balance Sheet, Deferred tax, Generally Accepted Accounting Principles, Income tax in the United States