Problem Number 1: Jill Morris is presently leasing a small business computer from Eller Office Equipment...
Problem Number 1: Jill Morris is presently leasing a small business computer from Eller Office Equipment Company. The lease requires 10 annual payments of $6,000 at the end of each year and provides the lessor (Eller) with an 8% return on its investment. You may use the following 8% interest factors: 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 an 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 Eller? (b) What amount would each payment be if the ten annual payments are to be made at the beginning of each period?
Homework Answers
| a | ||
| Annual payments | 6000 | |
| X Present Value of Ordinary Annuity of 1 | 6.71008 | |
| Original cost of the computer | 40260 | |
| b | ||
| Original cost of the computer | 40260 | |
| Divide by Present Value of an Annuity Due of 1 | 7.24689 | |
| Amount of each payment | 5555 | or 5556 |
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