Question

Taylor's tractor-trailer rigs sell for $154,000. A customer wishes to buy a rig on a lease purchase plan over seven years, with the first payment to be made at the inception of the lease. Interest is at 12%. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: a. Compute the amount of the annual lease payment and the gross amount (total payments) due under the lease. (Use rounded Annual lease payment to compute Gross amount.) b. Compute the amount of interest income earned by Taylor's for the first year of the lease. 36 a. Annual lease payment Gross amount b. Interest income

Answer 1

Answer:
(a)
Annual Lease Payment              = Lease Amount / PV Annuity Due Factor ( 12%, 7 Years )              =   $ 154,000 / 5.11141              =    $ 30,128.67 (or ) $ 30,129
Annual Lease Payment	$ 30,128.67 (or ) $ 30,129
Gross Amount = Annual Lease Payment x No. of Years                                =   $ 30,129 x 7 Years	$ 210,903
(b)
Interest Expense         = (Lease Amount (-) Annual Lease Payment ) x Interest Rate         =   ( $ 154,000 (-) $ 30,129 ) x 12%         =     $ 123,871 x 12%	$ 14,864.52 (or ) $ 14,865