Billit Corporation is considering leasing a machine to a client for five years. The machine sells...
Billit Corporation is considering leasing a machine to a client for five years. The machine sells for $100,000 cash. The incremental borrowing rate is 8%. The implicit rate is unknown. Payments are quarterly and start at the commencement of the lease. What is the quarterly lease payment? Show your work.
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Quarterly |
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Calculation of Initial Lease Liability: |
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Quaterly Payment |
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Non-Lease Component* |
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Minimum Lease Payment |
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Present Value Factor |
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Present Value of Mininum Lease Payment |
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Homework Answers
PV = -100,000
Rate=8/4=2%
N=5*4=20
PV of annuity due = Annuity + Annuity*(1-1/(1+rate)^(number of terms-1))/rate
100000= A+ A*(1-1/1.02^19)/0.02
100000=A + A*15.678462
100000 =16.678462 A
A= 100000/16.678462
A = $5995.76
Hence the quarterly payment is $5995.76
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