What would be: The present value (PV) of the payments due under the lease is $?

Question

What would be:

The present value (PV) of the payments due under the lease is $?

The present value (PV) of the payments due under the lease is $?

On January 1, 2014, Galactic Manufacturing leased a piece of machinery for use in its North American operations from Kailua Bank. The three-year, non-cancellable lease requires lease payments of $1,300 due at the beginning of each year. The machinery is estimated to have a five-year life and the fair value on the date the lease is signed is $10,100. The lease agreement does not transfer ownership of the machinery, nor does it contain a bargain purchase option. Galactic uses a 10% interest rate to compute the present value of the lease payments.

Explanation / Answer

The present value (PV) of the payments due under the lease = 1300*PV Annuity factor = 1300*2.73554 = $3556.20

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