If a machine costs $50,000, and $5,000 a year for the lessor to maintain and insure, what equivalent annual cost would serve as the basis of a full-service lease payment for a six-year operating lease, paid in arrears, if the lessor's cost of capital is 8%?
A)$15,816
B)$73,114
C)$17,155
D)$55,000

Question

Quizplus · Accepted Answer

The equivalent annual cost is calculated by finding the annual payment that would amortize the total cost of the machine and maintenance over the lease term at the given cost of capital. The present value of the costs is calculated and then converted into an annuity using the cost of capital.

If a Machine Costs $50,000, and $5,000 a Year for the Lessor