Question

In: Economics

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 2 years ago
Next > < Previous

Related Solutions

On January 1, 2018, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance...
On January 1, 2018, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by NIC. Portions of the United Leasing’s lease amortization schedule appear below: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Jan....
On June 30, 2021, Georgia-Atlantic, Inc. leased a warehouse equipment from IC Leasing Corporation. The lease...
On June 30, 2021, Georgia-Atlantic, Inc. leased a warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $530,203 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 12%, the same rate IC uses to calculate lease payment amounts. Amortization is recorded on a straight-line basis at the end of each fiscal year. The fair value...
On June 30, 2021, Georgia-Atlantic, Inc. leased a warehouse equipment from IC Leasing Corporation. The lease...
On June 30, 2021, Georgia-Atlantic, Inc. leased a warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $677,829 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Amortization is recorded on a straight-line basis at the end of each fiscal year. The fair value...
Is a sprawling city (like Atlanta and Tampa) or a compact city (like New York and...
Is a sprawling city (like Atlanta and Tampa) or a compact city (like New York and Boston) better in terms of healthy lifestyle and environmental impacts? Explain why. (150-200 words)
On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement...
On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $779,224 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 9%, the same rate IC used to calculate lease payment amounts. IC purchased the warehouse from Builders, Inc.. at a cost of $4.2 million. (FV of $1, PV of...
On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement...
On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $403,067 over a five-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 8%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Inc.. at a cost of $3.4 million. (FV of $1, PV of...
Nick from Warf Computers company would like to lease equipment equipment from Hendrix Leasing. The lease...
Nick from Warf Computers company would like to lease equipment equipment from Hendrix Leasing. The lease contract calls for four annual payments of $1,040,000, due at the beginning of the year. Additionally, Warf Computers must make a security deposit of $240,000 that will be returned when the lease expires. Warf Computers can issue bonds with a yield of 11 percent, and the company has a marginal tax rate of 35 percent. After thought, Nick says he would like a lease...
Eider Equipment Leasing Limited
Eider Equipment Leasing Limited is in the financing lease business. It uses a service organization to compute lease payment schedules. Eider’s customers sign standard equipment leases ranging from 3 to 15 years. The details of the leases are summarized and sent to the service organization for generating the schedules. Hard copy reports from the service organization are delivered to Eider monthly and used by its bookkeeper to generate entries in the company’s general ledger system, which is run on a...
Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020.
  Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020. The following information relates to the lease agreement. 1.   The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2.   The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2020, is $700,000. 3.   At the end of the lease term, the...
Green Corporation is considering leasing a new equipment. The lease lasts for 8 years. The lease...
Green Corporation is considering leasing a new equipment. The lease lasts for 8 years. The lease calls for 8 payments of $225,000 per year with the first payment occurring immediately. The equipment would cost $1,480,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 25%. The corporate tax rate is...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT