Leases R Us
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Leases R Us, Inc (LRU) has been contracted by Robotics of Beverly Hills (RBH) to provide lease financing for a machine that would assist in automating a large part of their current assembly line. Annual lease payments will start at the beginning of each year. The purchase price of this machine is $250,000, and it will be leased by RBH for a period of 5 years. LRU will utilize straight line depreciation of $50,000 per year with a zero book salvage value. However, salvage value is estimated to actually be $50,000 at the end of 5 years. LRU is required to earn a 3%, quarterly after-tax rate of return on the lease. LRU uses a marginal tax rate of 35%. Calculate the annual lease payments. (Remember, these payments are to be considered at the beginning of each year - annuity due.)
SHOW ALL STEPS wtih formulas in Excel. Include calculating the amount to be amoritized, calculating the quarterly after tax required lease income and calculating the lease payment.
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Solution Summary
The solution explains how to calculate the annual lease payment.
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