What Is the Present Value of an Operating Lease That

question 26

Multiple Choice

What is the present value of an operating lease that involves payments of $5,000 per year (the end of the year) for 10 years with no possibility of purchase at the end of the lease term.Assume that the firm is in the 40% marginal tax rate and the pre-tax cost of debt for the firm is 8%?

• A) $38,986.43
• B) $23,391.86
• C) $20,130.24
• D) $18,000.00

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Definitions:

Flexible-price Policy

A pricing strategy where the selling price of a product or service can fluctuate based on market conditions, competition, and consumer demand.

Target Pricing

Target pricing is a pricing strategy where the selling price is determined by estimating a competitive price in the market and working backward to calculate costs, aiming for a certain profit margin.

Price Cutting

A strategy where a company reduces the prices of its goods or services, often to attract more customers or compete with rivals.

Product Class

A broad category of products that serve a similar function or are marketed in a similar manner but vary in features, quality, and price.