Jill Morris is presently leasing a small business computer from Eller Office Equ
ID: 2472032 • Letter: J
Question
Jill Morris is presently leasing a small business computer from Eller Office Equipment Company. The lease requires 13 annual payments of $11,000 at the end of each year and provides the lessor (Eller) with an 9% return on its investment. You may use the following 9% interest factors: 10 Periods 13 Periods 12 Periods Future Value of 1 2.36736 3.06580 2.81266 Present Value of 1 0.42241 0.32618 0.35553 Future Value of Ordinary Annuity of 1 15.19293 22.95338 20.14072 Present Value of Ordinary Annuity of 1 6.41766 7.48690 7.16073 Present Value of an Annuity Due of 1 6.99525 8.16073 7.80519
Assuming the computer has a 13-year life and will have no salvage value at the expiration of the lease, what was the original cost of the computer to Eller?
What amount would each payment be if the 13 annual payments are to be made at the beginning of each period?
Assuming the computer has a 13-year life and will have no salvage value at the expiration of the lease, what was the original cost of the computer to Eller?
What amount would each payment be if the 13 annual payments are to be made at the beginning of each period?
Explanation / Answer
Answer a. Original Cost of Computer = $11000 (Installment Due) X 7.4869 (PV of Ordinary Annuity) Original Cost of Computer = $82355.90 or $82356 (Approx) Answer b. Original Cost of Computer = $11000 (Installment Due) X 8.16073 (PV of Ordinary Annuity of 12 Years + 1 ) Original Cost of Computer = $89768.03 or $89768 (Approx)
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