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How to calculate Net Present Value of the Minimum Lease Payments incl bargain purchase option?

April 26, 2017Business CALCULATE Finance lease minimum NET PAYMENTS PRESENT value

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How to calculate Net Present Value of the Minimum Lease Payments incl bargain purchase option?

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We need the interest rate implicit or express in the contract to compute the present value of minimum lease payments and bargain purchase option. To compute for the present value of the minimum lease payments, multiply $110000 ($125000 less $15000) by the present value factor of ordinary annuity of ‘interest rate factor’ for seven periods. To compute for the present value of the bargain purchase option, multiply $120000 by the present value of one of ‘interest rate factor’ for seven periods. Ignore salvage value.