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What annual lease payments will leasing company require

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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? (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: EM131122064

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