Problem:
A corporation has contracted to provide lease financing for a machine to automate an assembly line. Annual lease payments will start at the beginning of each year.
The purchase price of this machine is $250,000.00, and it will leased for five years. They will utilize straight line depriciation of $50,000.00 per year with a zero book salvage value. However, salvage value is estimated to actually be $50,000.00 at the end of 5 years.
A 3% quarterly after tax rate of return is required. These payments are considered annuity due at the beginning of each year. A marginal tax rate of 35% is used.
Calculate the annual lease payments. These payments are to be considered at the begining of each year - annuity due.
Please show calculations and/or formulas in excel to allow better understanding of the process.