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Schaad corporation has entered into an eight-year lease for a piece of equipment. the annual payment under the lease will be $2,500, with payments being made at the beginning of each year. if the discount rate is 14%, what’s the present value of the lease payments? ignore income taxes in this problem.

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If the discount rate of the eight-year lease for a piece of equipment entered by Schaad Corporation is 14% with an annual lease payment of $2,500, the present value of the lease payments is $13,220.76.

How is the present value of lease payments determined?

The present value (PV) of lease payments can be determined by computing the discount factor of 14% for 8 years and multiplying it with the annual lease payment.

The present value can also be computed using the PV table or the PV formula.

However, for this exercise, we have used an online finance calculator to determine the PV as follows:

Data and Calculations:

N (# of periods) = 8 years

I/Y (Interest per year) = 14%

PMT (Periodic Payment) = $2,500

FV (Future Value) = $0

Results:

PV = $13,220.76

Sum of all periodic payments = $20,000 ($2,500 x 8)

Total Interest = $6,779.24

Thus, if the discount rate of the eight-year lease for a piece of equipment entered by Schaad Corporation is 14% with an annual lease payment of $2,500, the present value of the lease payments is $13,220.76.

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