Question
On May 31, 2018, the Gusto Beer Company leased a machine from B. A. Lush, Inc. The lease agreement requires Gusto to pay eight annual
On May 31, 2018, the Gusto Beer Company leased a machine from B. A. Lush, Inc. The lease agreement requires Gusto to pay eight annual payments of $16,000 on each May 31, with the first payment due on May 31, 2018. Assuming an interest rate of 6% and that this lease is treated as an installment sale (capital lease), Gusto will initially value the machine by multiplying $16,000 by which of the following?
a. Present value of $1 at 6% for eight periods
b. Present value of an ordinary annuity of $1 at 6% for eight periods
c. Future value of an annuity due of $1 at 6% for eight periods
d. Present value of an annuity due of $1 at 6% for eight periods
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