Answer:
The amount of the annual lease payments is $98,124.
Explanation:
This can be calculated using the formula for calculating loan amortization as follows:
P = (A * (r * (1 + r)^n)) / (((1+r)^n) - 1) .................................... (1)
Where,
P = Annual lease payments = ?
A = Amount to be recovered through periodic lease payments = Equipment cost - Residual value = $425,000 - $100,000 = $325,000
r = interest rate = 8%, or 0.08
n = Number of years of lease term = 4
Substituting all the figures into equation (1), we have:
P = ($325,000 * (0.08 * (1 + 0.08)^4)) / (((1+0.08)^4) - 1)
P = $98,124.2614475627
Rounding to the nearest whole dollar as required, we have:
P = $98,124
Therefore, the amount of the annual lease payments is $98,124.
