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Compute cost of computer and amount of each payment

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Norris is presently leasing a small business computer from Stark office equipment co. the lease requires 10 annual payments of $3,500 at the end of each year and provides the lessor (stark) with an 8% return on its investment. You may use the following 8% interest factor:
9 periods 10 periods 11 periods
future value of 1 1.99900 2.15892 2.33164
present value of 1 .50025 .46319 .42888
future value of ordinary
annuity of 1 12.48756 14.48656 16.64549

present value of ordinary
annuity of 1 6.24689 6.71008 7.13896

present value of annuity
due of 1 6.74664 7.24689 7.71008

Instructions:

(A) Assuming the computer has a ten-year life and will have no salvage value at the expiration of the lease, what was the original cost of the computer to Stark?

(B) What amount would each payment be if the ten annual payments are to be made at the beginning of each period?

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Solution Preview

a) Original cost of the computer is the present value of the annuity of Rs. 3500 with number of periods=10 years and r=8%.
PV of an annuity = Payment ...

Solution Summary

The expert computes the cost of a computer and amount of each payment Norris will pay for leasing a computer.

$2.19
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