Question

Consider a 7 ?-year lease for a $ 150,000 bottling? machine, with a residual market value...

Consider a 7 ?-year lease for a $ 150,000 bottling? machine, with a residual market value of $ 37,500 at the end of 7 years. If the? risk-free interest rate is 6.2 % APR with monthly? compounding, compute the monthly lease payment in a perfect market for the following? leases:

a. A fair market value lease.

what is the present value of the lease payment? round to nearest dollar

A fair market value lease would be what ? round to nearest dollar

b. A $ 1.00 out lease.

A one dollar lease would be what? round to nearest dollar

c. A fixed price lease with an $ 25,000 final price

what is The present value of the lease? round to the nearest dollar

what would a fixed price lease with a $25,000 final price be ? round to nearest dollar

.

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Answer #1

1)

Annual risk free interest Rate 6.20%
Monthly Rate of interest 0.52%
Present value of lease payment:- 146875
{150000- 37500/(1.0052) ^84 }

As the first lease payment is made upfront , the remaining lease payment will be made in 83 equal installments:-The monthly lease payment=

{146875=L{(1+1/0.005)(1-1/1.005^83)}=$2135

2)Lease will receive only $1 in the end of the lease, hence PV of lease payment should be $150000

Therefore

The monthly lease payment=

{400000=L{(1+1/0.005)(1-1/1.005^83)}

L=$2180

3)Here in the end leasor will receive $25000 therefore

Present value of lease payment:- $133829

{150000- 25000/(1.0052) ^84 }

As the first lease payment is made upfront , the remaining lease payment will be made in 83 equal installments:-The monthly lease payment=

{133829=L{(1+1/0.005)(1 -1/1.005^83)}

Monthly lease payment-$1945
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