Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Your client, Keith Grouper Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 26 years

Your client, Keith Grouper Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 26 years

Accounting

Your client, Keith Grouper Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 26 years. Grouper has an investment cost of $428,000 in the machine, which has a useful life of 26 years and no salvage value at the end of that time. Your client is interested in earning an 11% return on its investment and has agreed to accept 26 equal rental payments at the end of each of the next 26 years.

 

Click here to view factor tables

 

You are requested to provide Grouper with the amount of each of the 26 rental payments that will yield an 11% return on investment. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

 

Amount of each rental payments$

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Computation of Amount of Each Rental Payment using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Amount of Each Rental Payment = ?

Rate = 11%

Nper = 26

PV = $428,000

FV = 0

Substituting the values in formula:

=pmt(11%,26,-428000,0)

PMT or Amount of Each Rental Payment = $50,423.78

 

Or we calculate it as follows:

Amount of Each Rental Payment = Investment Cost/(PVA26, 11%)

Here,

Investment Cost = $428,000

PVA26, 11% or Present Value Factor at 11% for 26 years = 7.9844

Present Value Factor at 12% for 28 years as per annuity chart is 8.48806

Amount of Each Rental Payment = $428,000/8.48806 = $50,423.78

Related Questions