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 $820,000. Benning wants to be reimbursed for financing the machine at an 8% 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 12 equal annual payments beginning immediately. |
2. |
Determine the required lease payment if the first of 12 annual payments will be made one year from the date of the agreement. |
3. |
Determine the required lease payment if the first of 12 annual payments will be made immediately and Benning will be able to sell the machine to another customer for $52,000 at the end of the 12-year lease. |
1) | |
Present Value | $820,000 |
Period | 12 |
Rate | 8.00% |
Annual Payment = $820,000 / PVAD(8%,12) = $820,000/8.13896 | $100,749.97 |
2) | |
Present Value | $820,000 |
Period | 12 |
Rate | 8.00% |
Annual Payment = $820,000 / PVA(8%,12) = $820,000/7.5361 | $108,809.6 |
3) | |
Present Value | $820,000 |
Period | 12 |
Rate | 8.00% |
Residual value | $52,000 |
Present Value of Residual = $52000 x PV(8%,12)= 52000 x .3971 | $20,649.2 |
Annual Payment = ($820,000 - $20,649.2)/PVAD(8%,12) ; 799,350.8/8.13896 | $98,212.89 |
Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured...
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