What annual lease payments each leasing company require

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Reference no: EM131334968

The Jacobs Company desires to lease a numerically controlled milling machine costing $200,000. Jacobs has asked both First Manufacturers Bank Leasing Corporation and Commercial Associates, Inc. (a commercial finance company) to quote an annual lease rate.

Both leasing companies now require a 20 percent pretax rate of return on this type of lease. Suppose First Manufacturers estimates the machine's salvage value at the end of the lease to be $30,000 and Commercial Associates estimates salvage to be $80,000.

Based on this information, what annual (beginning-of-year) lease payments will each leasing company require if the lease term is five years?

(Note: Because the required rate of return of both the bank and the finance company is stated on a pretax basis, you need not consider depreciation or the tax effects of salvage.)

Reference no: EM131334968

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