CPP Motors is having a tough time selling cars because local banks are tightening up credit

standards. So$,$ CPP Motors decides to provide financing to customers through leasing

agreements. The managers of the leasing program has a nice used Lexus $($fair value $=$

$$25,000)$ to offer via lease. The manager asks you the following questions.

a$.$ If I lease this car for $6$ years, what should the annual lease payment be at the end of

each year? I need to make $12\%$ per year on the financing, and I don't believe that the

car will be worth anything when I get it back in $6$ years. Also, let me know what the

payments should be if I require the first payment up front instead of at the end of each

year.

b$.$ Hey, what if I assume that the car will be worth $$8,000$ in $6$ years. What should the

$($end of the year$)$ annual lease payment be under that assumption?

c$.$ I am thinking of making the payment $$4,000$ per year. Going back to my original

assumption of no value at the end of the lease, how many years will the lease term

have to be in order for me to make my required $12\%$ return?

d$.$ By the way, I saw a lease being offered by Trusty Phil's Auto in San Bernardino

County. He is leasing a truck worth $$20,000$ for $7$ years at an annual payment $($due at

the end of the year$)$ of $$4,807.$ At the end of the lease, the customer gets to keep the

truck with no additional payment. What kind of return is Trusty Phil earning on this

deal? Provide formula's by using EXCEL.