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 $980,000. 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.) 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.

Answer 1

Solution:

PVA = Annuity amount × Annuity factor

Annuity amount =  $\frac{PVA}{Annuity factor}$

Annuity amount =

                              $\frac{980,000}{7.36009}$

**Present value of an ordinary annuity of $1:n= 10, i= 6% (from PVA of $1)

Annuity amount = $108,694 = Lease payment