Question

You have to buy a new copier. The cost of the copier is $5000, plus $500 per year in maintenance costs. The copier will last for five years. Alternatively, a local company offers to lease the copier to you and do the maintenance as well. If your discount rate is 10%, what is the most you would be willing to pay per year to lease the copier (your first lease payment is due in one year)?

Answer 1

Annual Lease payment will be $ 1,818.99 or $ 1,819.0 or $ 1,819

Step-1: Calculation of present value of cash flow under buying option
Present Value of buying option	=	Initial cost	+	Present Value of annual cost
	=	$ 5,000.00	+	$ 1,895.39
	=	$ 6,895.39
Working:
Present Value of annual cost	=pv(rate,nper,pmt,fv)		Where,
	= $ 1,895.39			rate	=	10%
				nper	=	5
				pmt	=	$         -500
				fv	=	0
Step-2:Calculation of lease payment
Lease Payment	=-pmt(rate,nper,pv,fv)	Where,
	= $ 1,818.99			rate	=	10%
				nper	=	5
				pv	=	$ 6,895.39
				fv	=	0