Manitoba Medical has decided to lease a new MRI machine for the next 15 years.The purchase price of the machine is $1.2 million and there is no residual value.If there is no risk of default and the risk-free rate is 4% APR with monthly compounding,what is the monthly lease payment for a 15-year lease in a perfect capital market?

Question

Quizplus · Accepted Answer

To calculate the monthly lease payment, we can use the present value formula:

PV = PMT * [(1 - (1 + r)^-n) / r]

where PV is the present value (purchase price), PMT is the monthly lease payment, r is the monthly interest rate (4%/12 = 0.33%), and n is the total number of months (15 years * 12 months/year = 180 months).

Plugging in the numbers, we get:

$1,200,000 = PMT * [(1 - (1 + 0.0033)^-180) / 0.0033]

Solving for PMT, we get:

PMT = $8,846.77

Therefore, the monthly lease payment is $8,846.77, which corresponds to answer choice B.

Manitoba Medical Has Decided to Lease a New MRI Machine