On january 1, 2019, ashly farms leased a hay baler from agrico company. the lease requires ashly to make $3,000 payments on january 1 of each year for 5 years beginning in 2019. the interest rate is 12%. required: calculate the present value of ashly’s lease payments as of january 1, 2019.

$12,112.048

Explanation:

As for the information provided:

Lease payment amount = $3,000 each.

Period of lease = 5 years

Date of payment = 1 January each year

Rate of discount = 12%

Since first payment is made today the present value factor will be 1

Thereafter the present value cumulative discount factor for other four years @ 12% = 3.037

Now net cumulative factor for all the years included the present payment to be made today = 3.037 + 1 = 4.037

Therefore, present value of all the lease payments today = $3,000 4.037 = $12,112.048

Note: Present value discount factor shall be for 5 years as follows:

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