Question

(9%) ZXY Company decides to acquire a piece of equipment for $300,000. If ZXY wants to lease-finance the equipment, the manufacturer will provide such financing over 6 years. Assume the residual value is $2,000 and the discount rate is 12 percent, please answer the following questions 7、 A. Calculate the annual lease payment using the following formula Purchase price -Residual value T-1 て1Try B. Use the information to construct a lease amortization schedule. Beginning Cash Interest Lease of Year payment on Lease Obligation Initial Reduction Capital 0 End of 6 CD) C. How the information from the lease amortization schedule can be used to do capital budgeting decision in terms of lease? Below is some information that you may need 1.9738 (1 + 12%)6 Σ(1 + 1296) 4.6048 (9%) ZXY Company decides to acquire a piece of equipment for $300,000. If ZXY wants to lease-finance the equipment, the manufacturer will provide such financing over 6 years. Assume the residual value is $2,000 and the discount rate is 12 percent, please answer the following questions 7、 A. Calculate the anmual lease payment using the following formula Purchase price -Residual value T-1 (TT可 B. Use the information to construct a lease amortization schedule. Beginning Cash Interest Lease ing of Year payment on Lease Obligation Initial Reduction Capital 0 End of 6 C C. How the information from the lease amortization schedule can be used to do capital budgeting decision in terms of lease? Below is some information that you may need: 1.9738 (1 + 12%)6 Σ(1 + 1296ア 4.6048

Answer 1

A) Lease Payment can be calculated from the given formula:

Residual value 1+r) Purchase price-

Purchase Price= $300,000

Residual Value=$2000

Percentage discount(r)= 12%

T= 6 years

Numerator: 300,000- 2000/(1+.12)^6 =298,987

Denominator: (1/(1.12)^1)+(1/(1.12^2))+(1/(1.12)^3)+(1/(1.12^4)+(1/(1.12)^5)=3.6048

Lease Payment= Numerator/Denominator

= 298,987/3.6048

= $82,942

Therefore, Lease Payment is $82,942

B)

Year(A)	Outstanding Capital at the beginning of the year(B)	Cash payment(C) Lease Payment Calculated in Part A	Interest on lease(D) (12% of Column B)	Lease obligation reduction(E) (Column C-Column D)	Outstanding Capital at the end of the year(F) (Column B- Column E)
0					300000
1	300000	82942	36000	46942	253058
2	253058	82942	30367	52575	200483
3	200483	82942	24058	58884	141599
4	141599	82942	16992	65950	75649
5	75649	82942	9078	73864	1785
6	1785				1785

End of year 6, $1785(Residual Value) is remaining.