Question

Lane co. has a machine that cost $500,000. it is to be leased for 20 years with rent received at the beginning of each year. lane wants a return of 10%. calculate the amount of the annual rent.

Answer 1

Use the formula of the present value of an annuity due which is
Pv=pmt [(1-(1+r)^(-n))÷r]×(1+r)
Pv present value 500000
PMT amount of the annual rent?
R rate of return 0.1
N time 20 years

Solve the formula for PMT
PMT=pv÷[(1-(1+r)^(-n))÷r]×(1+r)
PMT=500,000÷(((1−(1+0.1)^(−20))
÷(0.1))×(1+0.1))
=53,390.73 round your answer to get 53391