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What are the required annual beginning-of-year lease payment

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Reference no: EM131122024

Ajax Leasing Services has been approached by Gamma Tools to provide lease financing for a new automated screw machine. The machine will cost $220,000 and will be leased by Gamma for five years. Lease payments will be made at the beginning of each year. Ajax will depreciate the machine on a straight-line basis of $44,000 per year down to a book salvage value of $0.

Actual salvage value is estimated to be $30,000 at the end of five years. Ajax's marginal tax rate is 40 percent.

Ajax desires to earn a 12 percent after-tax rate of return on this lease. What are the required annual beginning-of-year lease payments?

Reference no: EM131122024

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