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Libby_7e_MBA_Companion_Solutions

# Assuming an annual discount rate of 5 percent what is

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Unformatted text preview: ing an annual discount rate of 5 percent, what is the present value of this lease? ANSWER: EXCEL INPUTS Rate Periods Payment 0.05 4 -20,000 Future Value -10,000 EXCEL OUTPUT PV 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? ANSWER The second lease is a better deal in present value terms (see present value calculations below). Present value of first lease EXCEL INPUTS Rate Periods Payment 0.04 / 12 60 -2,000 Future Value 0 EXCEL OUTPUT Page 2 of 21 END-OF-CHAPTER MATERIAL PV 108,598.14 Present value of second lease EXCEL INPUTS Rate Periods Payment 0.04 / 12 60 0...
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