Thorngate Industrial is evaluating a capital lease for specialized machining equipment. The lessor requires 12 semi-annual payments of $87,500, with the first payment due immediately (annuity due). Thorngate's cost of capital is 7.3% annually. What is the present value of the lease obligation that should appear on Thorngate's balance sheet?
Correct Answers
present_value
$868,717.63
Step-by-Step Solution
Present Value of Annuity (annuity due): Payment (PMT): $87,500.00 Rate per period (r): 3.6500% Periods (n): 12 PVA (ordinary) = PMT × [1 − (1+r)^−n] ÷ r PVA = $87,500.00 × [1 − (1+3.6500%)^−12] ÷ 3.6500% PV Factor = 9.578583 PVA (ordinary) = $838,126.03 Annuity due: PVA × (1+r) = $838,126.03 × 1.036500 = $868,717.63