What Is the Present Value of an Operating Lease That

question 20

Multiple Choice

What is the present value of an operating lease that involves payments of $8,000 per year (at the end of each year) for 12 years with no possibility of purchase at the end of the lease term.Assume that the firm is in the 35% marginal tax rate and the pre-tax cost of debt for the firm is 12%?

• A) $60,918.39
• B) $49,554.99
• C) $39,596.96
• D) $32,210.75

---

Definitions:

Creditors

Individuals or institutions that lend money or extend credit to others.

Liabilities

Liabilities are financial obligations or debts that a company owes to external parties, which must be settled over time through the transfer of economic benefits including money, goods, or services.

External Transaction

A financial event involving an exchange between the business and another entity outside of the company.