Question

Ajax Capital has determined that the amount to be amortized on an extruder is $540,000. What annual lease payment must Ajax (lessor) require from the lessee if the required rate of return is 16%? Assume that the lease payments will be made at the beginning of each of the 7 years of the lease agreement and that the marginal tax rate is 40%.

Answer 1

the lease payment will be for 130,538.92 dollars

Step-by-step explanation:

as we want a net return of 16%

we will charge 40% to the interest rate to know the nominal interest:

0.16 x 1.4 = 0.224 = 22.4% before-tax rate

Now, we solve for the lease payment of this annuity-due:

`PV / (1-(1+r)^(-time) )/(rate) (1+r)= C\\`

PV $540,000.00

time 7

rate 0.224

`540000 / (1-(1+0.224)^(-7) )/(0.224)(1+0.40) = C\\`

C $ 130,538.923