Casio Corp. manufactured a gold-plated, diamond-studded calculator for Justin Beiber's new job as an auditor at PW-KPM-E&D. The calculator cost $3.5 million to manufacture and Casio wants to earn a gross profit margin from the sale of the calculator of 20%. Casio leased the calculator using a 16-year lease (Justin is going for partner so he will be there a long time) with semi-annual lease payments. The first lease payment is due at the lease inception date. Casio has a required rate of return (for interest) of 6%. They expect that the calculator will be worth $.5 million at the end of the lease, but the residual value is not guaranteed. What is the lease payment amount that Casio uses for this lease?
| Cost of calculator = | $ 35,00,000 | ||
| Gross profit margin = | 20% on sales | ||
| Cost + Gross profit = Sale price | |||
| 35,00,000+0.20X = X | |||
| X = 35,00,000/0.80 | |||
| Sale price = | $ 43,75,000 | ||
| Less : PV of residual value | $ -77,478.70 | ||
| PV of Lease payments | $ 42,97,521.30 | ||
| PVAF for 32 payments @ 6% = | 14.93 | "=PV(6%,32,-1,,1)" TYPE IN EXCEL | |
| Lease payment = | Sale price / PVAF for 32 payments | ||
| Lease payment = | 43,75,000 / 14.93 | ||
| Lease payment = | $ 2,87,862.32 |
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Casio Corp. manufactured a gold-plated, diamond-studded calculator for Justin Beiber's new job as an auditor at...
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