The Haradway Corporation plans to lease a 880,000 asset to the O\'Neil Corporati

Question

The Haradway Corporation plans to lease a 880,000 asset to the O'Neil Corporation. The lease will be for 11 years. Use Appendix D.

a) If the Hardaway Corporation desires a 10 percent return on its investment, how much should the lease payments be? (Round PV Factor to 3 decimal places. Round your answer to the nearest dollar amount.)

b) The Hardaway Corporation is able to take a 10 percent deduction from the purchase price of 880,000 and will pass the benefits along to the O'Neil Corporation in the form of lower lease payment, (related to the Hardaway Corporation in the form of lower initial net cost), how much should the revised lease payments be? The Hardaway Corporation desires a 10 percent return on the 11-year lease. (Roun PV Factor to 3 decimal places. Round your answer to the nearest dollar amount.)

Explanation / Answer

rate on investment = 10%

discount rate = 10%

PV @10%,11years = 6.495

value of asset = 8,80,000/6.495 = 135,488.84

since 10% deduction = purchase price * 10% =880,000*10% = 88,000

net values of the asset = total -deduction = 880,000 - 88,000 = 792,000

now as calculated PV before @10%,11 years = 6.495

lease payments = 792,000/6.495 = 121,939.95

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