On January 1, 2017, Wood Corporation leases a piece of equipment from Prior Corporation and properly...

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Finance

On January 1, 2017, Wood Corporation leases a piece of equipmentfrom Prior Corporation and properly accounts for the equipment as afinance lease. Under the agreement, Wood will make 7 annualpayments of $750,000 each January 1st. At the end of 7 years, Woodhas the option of buying the equipment for $200,000, when theestimated fair value will be $400,000. If Wood's incrementalborrowing rate is 7%, what is the present value of the minimumlease payments?
$4,574,004.64
$4,166,517.00
$4,449,454.69
None of the above

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3.8 Ratings (381 Votes)

Formula PV of annuity due can be used to compute present value of 7 annual payments as PV C x PVIFAD i n C annual cash payment 750000 i Rate of interest 7 n See Answer

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On January 1, 2017, Wood Corporation leases a piece of equipmentfrom Prior Corporation and properly accounts for the equipment as afinance lease. Under the agreement, Wood will make 7 annualpayments of $750,000 each January 1st. At the end of 7 years, Woodhas the option of buying the equipment for $200,000, when theestimated fair value will be $400,000. If Wood's incrementalborrowing rate is 7%, what is the present value of the minimumlease payments?$4,574,004.64$4,166,517.00$4,449,454.69None of the above