Task: Leases R Us, Inc Problem-Calculating Annual Payments.
Question: Leases R Us, Inc. (LRU) has been contracted by Robotics of Beverly Hills (RBH) to provide lease financing for a machine that would assist in automating a large part of their current assembly line. Annual lease payments will start at the beginning of each year. The purchase price of this machine is $250,000, and it will be leased by RBH for a period of 5 years. LRU will utilize straight line depreciation of $50,000 per year with a zero book salvage value. However, salvage value is estimated to actually be $50,000 at the end of 5 years. LRU is required to earn a 3%, quarterly after-tax rate of return on the lease. LRU uses a marginal tax rate of 35%. Calculate the annual lease payments. (Remember, these payments are to be considered at the beginning of each year-annuity due.)