Problem:
Annual lease payments will start at the beginning of each year. The purchase price of this machine is $200,000, and it will be leased for a period of 5 years. Utilizing straight line depreciation of $40,000 per year with a zero book salvage value. However, salvage value is estimated to actually be $35,000 at the end of 5 years. Although, organization is required to earn a 14%, after-tax rate of return on the lease. Company uses a marginal tax rate of 40%. Calculate the annual lease payments.