If a machine costs 50000 and 5000 a year for the lessor to m

If a machine costs $50,000 and $5,000 a year for the lessor to maintain and insure, what equivalent annual cost would serve as the basis of a full-service lease payment for a 6-year operating lease, paid in arrears, if the lessor\'s cost of capital is 8 percent? What if the payment were made in advance, at the beginning of the tear?

Solution

Case 1: Payment in arrears

EAC= Capital cost*(A/P,8%,6)+ Annual cost

=50000*.2163 +  5000

=$ 15815

Case 2: Payments in advance

EAC= (Capital cost+ Initial annual cost)*(A/P,8%,6)+ Annual cost*(P/A,8%,5)*(A/P,8%,6)

=55000*.2163 +  5000*3.993*0.2163

=$ 16214.93