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Present and future value tables of $1 at 3% are presented below:

-A firm leases equipment under a capital lease (analogous to an installment purchase)that calls for 12 semiannual payments of $39,014.40.The first payment is due at the inception of the lease.The annual rate on the lease is 6%.What is the value of the leased asset at inception of the lease?
A)$388,349.
B)$400,000.
C)$454,128.
D)$440,082.

Question

Use the following to answer questions 
Present and future value tables of $1 at 3% are presented below:
 
-A firm leases equipment under a capital lease (analogous to an installment purchase)that calls for 12 semiannual payments of $39,014.40.The first payment is due at the inception of the lease.The annual rate on the lease is 6%.What is the value of the leased asset at inception of the lease?
A)$388,349. 
B)$400,000. 
C)$454,128. 
D)$440,082.

Quizplus · Accepted Answer

The value of the leased asset is the present value of the lease payments. Since the payments are semiannual, the semiannual interest rate is 3% (6% annual rate divided by 2). The present value of an annuity formula is used to calculate the value of the leased asset, considering the first payment is made immediately.

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