Haystack, Inc. manufactures machinery used in the mining industry. On January 1, 2017 it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the beginning of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is $780,000, and the rate implicit in the lease is 8%, what are the equal annual payments

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Question:

Haystack, Inc. manufactures machinery used in the mining industry. On January 1, 2017 it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the beginning of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is $780,000, and the rate implicit in the lease is 8%, what are the equal annual payments

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Answer:$175,808Explanation:P=R (1-(1+i)^-n)/iWhere P=780,000*90%=$702,000R=?i=8%N=5 yearsBy putting above values in formula, we getP=R(1-(1+.08)^-5)/.08702,000=R*3.993R=702,000/3.993R=$175,808

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