1 | Present Value | $3,904,763 | ||||
2 | Pretax net receivable | $3,066,489 | ||||
3 | Total pretax effect on net income | $370,030 | ||||
Working Notes | ||||||
Computation of Present Value of Lease Rentals | ||||||
PV = P * (1-(1+(r/p))^-(n*p)/(r/p) | ||||||
where, | ||||||
PV = Present value of Lease rentals | ||||||
P = Value of Lease Rentals | ||||||
r = rate of interest | ||||||
n = period of lease(in years) | ||||||
p = no. of payments during the year | ||||||
Value of Lease Rentals (P) | $604,152 | |||||
rate of interest ('r.) | 10% | |||||
period of lease(in years) (n) | 4 | |||||
no. of payments during the year (p) | 2 | |||||
PV = P *
(1-(1+(r/p))^-(n*p)/(r/p) ( 604152 * (1-(1+.10/2)^-(4*2)/(.10/2) |
$3,904,763 | |||||
Computation of pretax income and receivable in 2021 | ||||||
Period | Beg.Bal. |
Lease Rent |
Interest | Principle | End Bal. | |
Jun-21 | $3,904,763 | $604,152 | $195,238 | $408,914 | $3,495,849 | |
Dec-21 | $3,495,849 | $604,152 | $174,792 | $429,360 | $3,066,489 | |
$370,030 | ||||||
Receivable Amount as on December 31,2021 | $3,066,489 | |||||
Pretax net income | $370,030 |
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