An asset with a market value of $95,000 and a cost of $80,000 is leased on...
An asset with a market value of $95,000 and a cost of $80,000 is leased on 1/1/x1. The lease is a sales‐type lease for the lessor. Six annual lease payments are due on January 1 beginning on 1/1/x1. The asset will have no residual value. The lessor sets a rate of return of 8%.
| Present value factor of an ordinary annuity for six years at 8% | 4.62288 |
| Present value factor of an annuity due for six years at 8% | 4.99271 |
| Present value factor of a single sum for a six‐year term at 8% | .63017 |
What amount will the lessor charge the lessee in annual lease
payments?
A. $15,833
B. $59,866
C. $19,028
D. $20,550
Homework Answers
Solution: The answer is D. $20,550.
lessor charge the lessee in annual lease payments = $ 20,550
Calculation:
1) Annual lease payments = Market Value / Annuity Present Value Factor @ 8% = $ 95,000 / 4.62288 = $20,550.
Notes:
1) As we pay the lease payments at the beginning of the year, so we take ordinary annuity rather than annuity due.
2) So, Remaining options are incorrect.
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