20Homework Answers
Ans:
Machine costs : $600,000
Buyback value after 4 years : $120,000
PV value @8% for 4 years : 1/(1.08)^4 = 0.73503
PV of buyback value : $120,000 * 0.73503 = $88,203
Present Value of total payments : $600,000 - $88,203 = $511,796
Annual Lease Payment : PV of Total payments / Annuity value @8% for 4 years
Annuity value @8% for 4 years : 1/(1.08)^1 + 1/(1.08)^2 + 1/(1.08)^3 + 1/(1.08)^4 = 3.31217
Annual Lease Payment : $511,796 / 3.31217 = $154,522
So correct answer option C.
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