Question: Iwoa Publishing is considering to lease a printer at a purchase price of 90,000. Its residual value in four years is certain to be 15,000,

Iwoa Publishing is considering to lease a printer at a purchase price of 90,000. Its residual value in four years is certain to be 15,000, and there is no risk that the lessee will default on the lease. Assume that capital markets are perfect and the riskfree interest rate is 6% APR with monthly compounding.

REQUIRED:

I. Calculate the monthly lease payments for a four-year lease of the printer. (2 marks)

II. Suppose that instead of leasing the printer, Iowa Publishing is considering purchasing a printer outright by borrowing the purchase price using a four-year annuity loan. Calculate the monthly loan payments for a fouryear loan to purchase the printer. (2 marks)

III. Compare your answers in parts I) and II). What are the advantages and disadvantages of each arrangement? Are the monthly payments similar or different? Explain why should they differ or not.

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