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T. Goho (lessee) wishes to lease a $25,000 car for 5 years. First Union Bank (lessor) has agreed to finance this lease and estimated the
T. Goho (lessee) wishes to lease a $25,000 car for 5 years. First Union Bank (lessor) has agreed to finance this lease and estimated the car will have a salvage value of $10,000 at the end of the lease. If First Union expects to depreciate the car on a straight-line basis to a salvage value of $0, what monthly lease payments must T. Goho make, given that First Union requires a 12% annual rate of return (assume a monthly interest rate of 1%)? Assume a marginal tax rate of 40% and payments at the beginning of each month.
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