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What is the total present value of the lease and the first year's interest expense?

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State Repairs acquires equipment under a noncancelable lease at an annual rental of $45,000, payable in advance for five years. After five years, there is a bargain purchase option of $75,000. The appropriate interest rate is 12 percent. What is the total present value of the lease and the first year's interest expense?

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This solution provides a detailed, step by step explanation of the given finance question.

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Payment made at the beginning of each year, so we compute the present value of the last four payments:
Annual payment = ...

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