HomeworkLib
Question

A $2500 computer system can be leased for $79 per momth.After 3 years it can be...

A $2500 computer system can be leased for $79 per momth.After 3 years it can be purchased for $750. This is also the salvage value if the system was purchased originally. what is the effective annual rate for leasing the computer?

business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Monthly interest rate = r

PV = $ 2500 , monthly lease payment = $ 79

Time period = 3 years or 36 months

Salvage value = $ 750

2500 = 79/(1 + r) + 79/(1 + r)2 + .... + 79/(1 + r)36 + 750/(1 + r)36

r = 1.75%

Effective annual rate = (1 + 1.75%)12 - 1 = 23.1%

0 0
Add a comment
Know the answer?
Add Answer to:
A $2500 computer system can be leased for $79 per momth.After 3 years it can be...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • A manufacturing company wants to acquire a new closed circuit TV (CCTV) system. The new CCTV...

    A manufacturing company wants to acquire a new closed circuit TV (CCTV) system. The new CCTV system can be purchased or it can be leased from the building in which the company has recently moved. If purchased, the system will cost $87,500 and will have a useful life of 5 years with no market value at that time. The annual operating cost is expected to be $52,000 per year. To lease the system, the company must pay a nonrefundable deposit...

  • Sacramento Cab Company owns several taxis that were purchased for $25,000 4 years ago. The cabs'...

    Sacramento Cab Company owns several taxis that were purchased for $25,000 4 years ago. The cabs' current market value is $12,000 each, and if they are kept for another 6 years they $1,000 per year. Sacramento Cab has been approached about a leasing plan that would replace the cabs. The leasing plan calls for payments of $6,000 per year. The annual maintenance cost for leased cab is $750 per year. Should the cabs be replaced is the interest rate is...

  • Futuro Co. is considering purchasing a computer system to assist in circuit board manufacturing. ...

    Futuro Co. is considering purchasing a computer system to assist in circuit board manufacturing. The system costs $100,000. It has an expected life of 7 years, at which time its salvage value will be $9,500. Operating and maintenance expenses are estimated to be $2,000 per year. If the computer system is purchased, annual manufacturing costs will be reduced by $4,000 per year. Futuro co. must borrow half of the purchase price, but they cannot start repaying the loan for 3...

  • Bristol Company leased a machine from Harvard Leasing Company on January 1, 2017. The non-cancellable lease...

    Bristol Company leased a machine from Harvard Leasing Company on January 1, 2017. The non-cancellable lease term is 4 years. The following data relate to this lease: 1. Harvard purchased the machine for $363,950 at a cost equal to its fair market value. 2. The economic life of the machine is 6 years with no salvage value at the end of 6 years. 3. Payments are on January 1 of each year starting in 2017 (an annuity due). 4. The...

  • Galvanized Products is considering the purchase of a new computer system for its enterprise data management system.

    Galvanized Products is considering the purchase of a new computer system for its enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 15% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and have a salvage value of $5,000 at that time. Over the 5-year...

  • Kermit is considering purchasing a new computer system.

    Kermit is considering purchasing a new computer system. The purchase price is $128663. Kermit will borrow one-fourth of the purchase price from a bank at 10 percent per year compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $6897 at that time. Over the 5-year period, Kermit expects to pay a technician $20,000 per year to maintain the...

  • Suppose Clorox can lease a new computer data processing system for 971,000 per year for five...

    Suppose Clorox can lease a new computer data processing system for 971,000 per year for five years. Alternately it can purchase the system for 4.22 million. Assume Clorox has a borrowing cost of 6.7% and a tax rate of 35% and the system will be obsolete at the end of two years. A. If Clorox will depreciate the computer equipment on a straight line basis over the next five years, and if the lease qualifies a true tax lease qualifies...

  • Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system....

    Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: | Existing Computer $10,000 $ 3,500 $ 6,000 New Computer $15,000 $ 2,000 Original cost Annual operating cost Accumulated depreciation Current salvage value of the existing system Remaining life in 5 years Salvage value in 5 years $ 4,000 5...

  • Kermit is considering purchasing a new computer system.

    Question 7Kermit is considering purchasing a new computer system. The purchase price is $137160. Kermit will borrow one-fourth of the purchase price from a bank at 10 percent per year compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $8614 at that time. Over the 5-year period, Kermit expects to pay a technician $20,000 per year to maintain...

  • A diesel generator for electrical power can be purchased by a remote community for $350,000 and used for 10 years, when...

    A diesel generator for electrical power can be purchased by a remote community for $350,000 and used for 10 years, when its salvage value is $50,000. Alternatively, it can be leased for $42,500 a year. (Remember that lease payments occur at the start of the year.) The community’s interest rate is 7% What is the interest rate for buying versus leasing? What is the better choice? The community will spend $80,000 less each year for fuel and maintenance, that it...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT