The Company owns a machine with a value of $50,000 and a 5-year useful life. The estimated salvage value in five years is $10,000. The number of payments will be five (5) and the first payment is due immediately. The remaining payments are due at the end of each of the next four years. Assume your client desires a 10% rate of return. What amount of payment should be specified in the lease contract? Consider the salvage value. When you consider the salvage value, in Excel, the future value is a negative number, and the present value is positive. State your answer without commas or dollar signs, and no decimals.

The Company owns a machine with a value of $50,000 and a 5-year useful life. The estimated salvage value in five years is $10,000. The number of payments will be five (5) and the first payment is due immediately. The remaining payments are due at the end of each of the next four years. Assume your client desires a 10% rate of return. What amount of payment should be specified in the lease contract? Consider the salvage value. When you consider the salvage value, in Excel, the future value is a negative number, and the present value is positive. State your answer without commas or dollar signs, and no decimals.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

Mauer Mining Company leases a special drilling press with annual payments of $100,000. The contract calls for rent payments at the beginning of each year for a minimum of 6 years. Mauer Mining can buy a similar drill for $490,000, but it will need to borrow the funds at 10%. a. Determine the present value of the lease payments at 10%. b. Should Mauer Mining lease or buy this drill?
A property owner has set up a contract in which he agrees to sell a warehouse 5 years from now to the tenant who currently leases the space. The tenant has agreed to continue to pay $20,000 in rent at the end of each year, including year five, at which time he will purchase the building for an additional $1,500,000. Assuming the required rate of return on a similar investment is 10% (annual), how much is this deal presently worth to the original owner of the property? $1,014,779.2 $1,007,197.20 $2,281,452.80 $2,293,663.00
Firm X buys equipment for $10,000 and leases the equipment to firm A for $600 a year for four years. After four years, firm X expects to sell the asset for $11,000. What is the return that firm X earns on the lease? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest whole number. %
The Olsen Company has decided to acquire a new truck. One alternativeis to lease the truck on a 4-year contract for a lease payment of $10,000 per year, withpayments to be made at the beginning of each year. The lease would include maintenance.Alternatively, Olsen could purchase the truck outright for $40,000, financing with a bankloan for the net purchase price, amortized over a 4-year period at an interest rate of 10%per year, payments to be made at the end of each year. Under the borrow-to-purchasearrangement, Olsen would have to maintain the truck at a cost of $1,000 per year, payableat year-end. The truck falls into the MACRS 3-year class. The applicable MACRS depreciationrates are 33%, 45%, 15%, and 7%. The truck has a salvage value of $10,000, which is theexpected market value after 4 years, at which time Olsen plans to replace the truck regardlessof whether the firm leases the truck or purchases it. Olsen has a federal-plus-state taxrate of 40%.a. What is Olsen’s PV cost of…
An industrial engineering consulting firm signed a lease agreement for simulation software. Calculate the present worth in year 0 if the lease requires a payment of $30,000 now and amounts increasing by 5% per year through year 7. Use an interest rate of 10% per year.
Imagine you leased a piece of equipment for three years. The lease required payments of $10,000 per year, due at the end of each year. Calculate the present value of each payment if the interest rate is 10%. Complete the following table: Present Value of Payment Payment $10,000 $10,000 $10,000 Year Year 1 (end of this year) Year 2 (end of next year) Year 3 (end of the following year) What is the total present value of all three payments?
Northwest Bank has been asked to purchase and lease to Fafner Construction equipment that costs $1,500,000. The lease will run for eight years. If Northwest seeks a minimum return of 10 percent, what will be the required lease payment? Assume there is no residual value. Use Appendix D to answer the question. Round your answer to the nearest cent. $
You need a particular piece of equipment for your production process. An equipment - leasing company has offered to lease the equipment to you for $ 9 comma 500 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 6.7%. what should you do? Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 negative $ 40 comma 800 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 Question content area bottom Part 1 The net present value of the leasing alternative is $ enter your response here. (Round to the nearest dollar.)
A property owner is evaluating the following alternatives for leasing space in his office building for the next five years: Gross lease. Rent will be $32 per square foot each year with the lessor responsible for payment of all operating expenses. Expenses are estimated to be $9 during the first year and increase by $1 per year thereafter. Calculate the effective rent to the owner (after expenses) for the lease using a 10 percent discount rate. Give typing answer with explanation and conclusion
A property owner is evaluating the following alternatives for leasing space in his office building for the next five years: Net lease with CPI adjustments. The rent will be $16 per square foot the first year. After the first year, the rent will be increased by the amount of any increase in the CPI. The CPI is expected to increase 7 percent per year. Calculate the effective rent to the owner (after expenses) for the lease using a 10 percent discount rate.
You must decide whether to buy a new car for $19,000 or lease the same car over a three-year period. Under the terms of the lease, you can make a down payment of 1000$ and have monthly payments of $.150 At the end of the three years, the leased car has a residual value (the amount you pay i 12,000f you choose to buy the car at the end of the lease period) of $. Assume you can sell the new car at the end of the three years at the same residual value. Is it less expensive to buy or to lease? Question content area bottom Part 1 The cost for buying the car and selling it after three years would be $ enter your response here.
A lessor acquired equipment for $82,100 and plans to lease it for a period of five years. If the equipment has no estimated residual value, what must be the annual lease charge for the lessor to earn 10 percent on the investment? Use Appendix D to answer the question. Round your answer to the nearest dollar. $ What would be the annual lease charge if the lessor sought to earn 8 percent? Use Appendix D to answer the question. Round your answer to the nearest dollar. $ If the equipment will have a residual value of $10,500, what lease payment will earn the lessor 10 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $