Leigh Fibers wishes to lease an automated knitting machine valued at $420,000 from Ogden Capital for a period of 10 years.Ogden expects to depreciate the asset on a straight-line basis to a salvage value of $0.Actual salvage value is also expected to be $0 at the end of the 10-year period.If Ogden requires a 15% after-tax rate of return on the lease, what is the lease payment required from Leigh Fiber? Assume that the lease payments will be made at the beginning of each year and that the marginal tax rate is 40%.
A)$111,470
B)$145,395
C)$96,930
D)$58,158

Question

Quizplus · Accepted Answer

$420,000 - $42,000(0.40)(5.019) = $335,681
PMT = $335,681/[5.019(1.15)] = $58,158
Lease payment = $58,158/(1 - 0.40) = $96,930

Leigh Fibers Wishes to Lease an Automated Knitting Machine Valued