Present value factor for ordinary annuity

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On January 1, Year 1, Seneca, Inc., entered into a 3-year lease of a machine from BestBuy Canada, BBC. Seneca must pay BestBuy three annual payments of $100,000 starting on December 31, Year 1. The machine's useful life from the lease commencement date is 5 years. The lease allows Seneca the option to purchase the machine at the end of the lease term for $15,000. Seneca is reasonably certain to exercise this purchase option.

Seneca's incremental borrowing rate is 15%, but the rate implicit in the lease is 10%, which is known to Seneca.

The present value factor for an ordinary annuity at 10% for 3 periods is 2.48685, and the present value of $1 at 10% for 3 periods is 0.7513.

The present value factor for an ordinary annuity at 15% for 3 periods is 2.28323, and the present value of $1 at 15% for 3 periods is 0.65752.

Reference no: EM133272706

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