Chapter 5, Problem 5.11P

Solving for unknown lease payment

• LO6–8, LO6–9

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 $800,000. Benning wants to be reimbursed for financing the machine at an 8% annual interest rate.

Required:

1. Determine the required lease payment if the lease agreement calls for 10 equal annual payments beginning immediately.

2. Determine the required lease payment if the first of 10 annual payments will be made one year from the date of the agreement.

3. Determine the required lease payment if the first of 10 annual payments will be made immediately and Benning will be able to sell the machine to another customer for $50,000 at the end of the 10-year lease.

[This is a variation of P 6-11 focusing on compounding periods of varying length.]