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present value of investment?

John is presently leasing a small business computer from queller Office Equipment Company. The lease requires 10 annual payments of ,000 at the end of each year and provides the lessor (queller) with an 8% return on its investment.

(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 queller?

(b) What amount would each payment be if the ten annual payments are to be made at the beginning of each period?

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June 29, 2010 | Filed Under Equipment Leasing Questions 

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One Response to “present value of investment?”

  1. Don G on June 29th, 2010

    (a) 10 payments at end of each year of $4,000, earning 8%. The PV of such an Ordinary Annuity = $26,840. (Factor of 6.7101 times 4,000)

    (b) Same facts but payment at beginning of period is the PV of an Annuity Due. Payment would be $3,704. (PV of 26,840 divided by the Factor of 7.24689)

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