Question

Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $980,000. Benning wants to be reimbursed for financing the machine at a 9% annual interest rate. (FV of $1. PV of $1. FVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the required lease payment if the lease agreement calls for 10 equal annual payments beginning immediately. 2. Determine the required lease payment if the first of 10 annual payments will be made one year from the date of the agreement. 3. Determine the required lease payment if the first of 10 annual payments will be made immediately and Benning will be able to sell the machine to another customer for $68,000 at the end of the 10-year lease. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Determine the required lease payment if the lease agreement calls for 10 equal annual payments beginning immediately. (Round your final answers to nearest whole dollar amount.) Table or calculator function Present Value n 5 10% Annual Installment Required 2 >

Answer 1

Based on the information available in the question, we can answer as follows:-

Requirement 1:-

N = 9

i = 9%

Cash Price = $980,000

Annual lease payment = x

$980,000 = X * [PVIFA(9%, 9 years)+1]

We add one in the equation above as the first payment for the lease falls immediately.

$980,000 = X* (5.9952 + 1)

$980,000 = 6.9952x

x = $980,000/6.9952

x = $140,096.06

Annual installmet = $140,096(Rounded)

Requirement 2:-

n = 10

i = 9%

Let annual payments be "x"

Cash price = x * PVIF (9%, 10 years)

$980,000 = x * 6.4177

x = $980,000/6.4177

x = $152,702.68

Annual payment = $152,703(Rounded)

Requirement 3:-

The lease payment if if the first 10 payments will be made immediately and Benning will be able to sell the machine to another customer $68,000 at the end of 10 year lease :-

n = 9

i = 9%

Let annual lease payments be "x"

$980,000 = X * [PVIFA(9%,9 years)+1] + $68,000*PVIF(9%, 9 years)

$980,000 = X * (5.9952 + 1) + $68,000 * 0.4604

$980,000 = 6.9952X + $31,307.2

$980,000 - $31,307.2 = 6.9952x

$948,693 = 6.9952x

x = $135,620.568

Annual payment = $135,620.57(Rounded)

Please let me know if you have any questions via comments and all the best :) !