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Chapter 6: Question 16Q (page 301)

Alexander Enterprises leases property to Hamilton, Inc. Because Hamilton is experiencing financial difficulty, Alexander agrees to receive five rents of $20,000 at the end of each year, with the rents deferred 3 years. What is the present value of the five rents discounted at 12%?

Short Answer

Expert verified

The present value of five rents received is $51,316.2.

Step by step solution

01

Definition of lease

A lease is defined as the contract outlining the terms under which a party agrees to rent an asset such as property or machine by another party.

02

Computation of present value of five rents

Presentvalue=Amountoffiverents×Presentvalueofordinaryannuityat12%for8periodsdeferred3periods=20,000×2.56581=$51,316.2

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