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 $700,000. Benning wants to be reimbursed for financing the machine at a 12% annual interest rate over the five-year lease term. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD 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 semiannual payments beginning six months from the date of the agreement. 2. Determine the required lease payment if the lease agreement calls for 20 equal quarterly payments beginning immediately. 3. Determine the required lease payment if the lease agreement calls for 60 equal monthly payments beginning one month from the date of the agreement. The present value of an ordinary annuity factor for n = 60 and i = 1% is 44.9550. 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 semiannual payments beginning six months from the date of the agreement. (Round your final answers to nearest whole dollar amount.) Table or calculator function: Present Value: n = Lease payment:

Answer 1

Cash price Rate of Interest Term of Lease $ 700,000 12% 5 years Solution 1) Table or calculation function : Present Value: PVA of $1 $ 700,000 10 n- 6% Lease Payment $ 95,108 Working Note: Lease Payment = = Present Value / PVA ( 6%, 10) $ 700,000 / 7.36009 $ 95, 108 Solution 2) Table or calculation function : Present Value: n- PVAD of $1 $ 700,000 20 3% $ 45,681 i = Lease Payment Working Note: Lease Payment = Present Value / PVA ( 3%, 20) $ 700,000 / 15.3238 $ 45,681 Solution 3) Table or calculation function : Present Value: PVA of $1 $ 700,000 60 n = i = 1% Lease Payment $ 45,681 Working Note: Lease Payment 1111 Present Value / PVA ( 1%, 60) $ 700,000 / 44.9550 $ 45,681

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