CORPORATE FINANCE- ACCESS >C<
12th Edition
ISBN: 9781307447248
Author: Ross
Publisher: MCG/CREATE
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Chapter 4, Problem 51QAP
Summary Introduction
To compute: Monthly lease payments.
Introduction: Investors invest in bonds to ensure regular income (interest income) on their investments. Bondholders are the investors who are risk averse.
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Suppose you are a property owner and you are collecting rent for an apartment. The tenant has signed a one-year lease with $600 a month rent, payable in advance. Find the present value of the lease contract if the discount rate is 12% per year.
You want to lease a set of golf clubs from Pings Ltd. The lease contract is in the form of 24 equal monthly payments at an APR of 8.4 percent compounded monthly. Because the clubs cost $2,500 retail, the company wants the value today of the lease payments to equal $2,500. Suppose that your first payment is due immediately. What will your monthly lease payments be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Alternative Calculation of Monthly Lease Payment:
FV
PV
(1+ i)N
1
LP =
1
(1+i)N-A
i
+ A
where LP – monthly lease payment;
PV – the present value of the future payments on the lease,
including the residual value, i.e. it is a lease amount;
FV – the future value of leased asset or its residual value;
N- the lease term (number of months);
A - the number of payments to be paid in advance (0,1,2,...);
i- monthly interest rate (i = APR÷12).
The formula presented above can be used for any payment
frequency. Just be sure that N is the number of periods and į is the
interest rate per period.
Chapter 4 Solutions
CORPORATE FINANCE- ACCESS >C<
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