Compact Excavator Leasing by the City of Saskatoon. The best offer was from Earthworks Equipment Corporation...

Compact Excavator Leasing by the City of Saskatoon. The best offer was from Earthworks Equipment Corporation of Saskatoon for Kubota KX040-4. The monthly lease payment is $1,076 for a 3-year lease and the buyout at the end of year 3 is $35,585. The City department manager is wondering what annual lease rate Earthworks is charging. He has investigated the price of a new KX040-4 and it is $71,081.

Calculate the annual lease rate. Show your work. Hint: Use Excel’s Goal Seek (in Data tab, then What-if Analysis) and PMT function.

Solutions

Expert Solution

First take a random value of the interest rate and calculate the Present value of stream of payments

Then go to the Data tab, What if analysis, goal seek function.

A dialogue box appears.

Select the cell whose value has to be changed and then type the value which is the price(71081) to which it should be changed. Since we want to know the interest rate, we would select the cell B3 in 'by changing cell'. Click ok.

Therefore, the annual lease rate calculated is 2.0183%

Rahul Sunny answered 1 year ago

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