Jack Sawyer is presently leasing a copier from John Office Equipment Company. The lease requires 11 annual payments of $4,500 at the end of each year and provides the leaser (John) with an 8% return on its investment. You may use the following 8% interest factors.
| |
9 Periods
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10 Periods
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11 Periods
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|
Future Value of 1
|
1.99900
|
2.15892
|
2.33164
|
|
Present Value of
|
.50025
|
.46319
|
.42888
|
|
Future Value of
|
12.48756
|
14.48656
|
16.64549
|
|
Ordinary Annuity of 1
|
|
|
|
|
Present Value of
|
6.24689
|
6.71008
|
7.13896
|
|
Ordinary Annuity of 1
|
|
|
|
|
Present Value of
|
6.74664
|
7.24689
|
7.71008
|
|
Annuity Due of 1
|
|
|
|
Instructions:
(a) Assuming the computer has an 11-year life and will have no salvage value at the expiration of the lease, what was the original cost of the copier to John?
(b) What amount would each payment be if the 11 annual payments are to be made at the beginning of each period?