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 $880,000. Benning wants to be reimbursed for financing the machine at a 9% annual interest rate. (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 15 equal annual payments beginning immediately.
2. Determine the required lease payment if the first of 15 annual payments will be made one year from the date of the agreement.
3. Determine the required lease payment if the first of 15 annual payments will be made immediately and Benning will be able to sell the machine to another customer for $58,000 at the end of the 15-year lease

Required 1 Required 2 Required 3 Determine the required lease payment if the lease (Round your final answers to nearest whole dollar Table or calculator function: Present Value: n = Annual Installment:

Answer 1

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 $880,000. Benning wants to be reimbursed for financing the machine at a 9% annual interest rate.

Required 1 :- n = 14

i = 9%

Cash Price = 880000

Let Lease Payment = x

Cash Price = Lease Payment [PVAF(i,n) + 1 ]

880000 = x ( PVAF(9%,14) +1 )

880000= 8.78615x

x = $100158

Lease payment = $ 1,00,158

Required 2 :-

lease payment if the first of 15 annual payments will be made one year from the date of the agreement:-

n = 15

i = 9%

Cash Price =880000

Cash Price = Lease Payment[ PVAF (i,n)]

880000 = x[ PVAF (9%,15)]

880000= 8.06069 x

x = 109172%

Lease Payment = $ 109172

Required 3 :-

Lease payment if the first of 15 annual payments will be made immediately and Benning will be able to sell the machine to another customer for $58,000 at the end of the 15-year lease:-

n = 14

880000 = x [ PVAF(i,n)+1 ]+ 58000 [ PVF (i,n+1) ]

880000 = x [ PVAF(9%,14)+1 ]+ 58000[ PVF(9%,15) ]

880000 = 8.78615x + 15923

8.78615x = 864077

x = 98345

Lease Payment = $ 98345