Question

Calculating Lessor Payment—No Residual Value
Konverse Inc. is negotiating an agreement to lease equipment to a lessee for 6 years. The fair value of the equipment is $80,000 and the lessor expects a rate of return of 7% on the lease contract and no residual value. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Konverse Inc. charge in order to earn its expected rate of return on the contract?
Note: Round your answer to two decimal places.
Note: Do not use a negative sign with your answer.

Lease payment
Answer

Answer 1

Solution

Given in question
Fair value	$80,000
Rate of Return	8%
Lease term	7 years
Calculation of Annual Lease payment
Fair Value ( Amount to be recovered) (a)	$80,000
Less - Present Value of Residual Value (b)	0
Amount to be recovered (a - b)	$80,000
Present Value Annuity Factor @ 7 % for 6 years	5.39
Lease Payment at beginning of each year ($80000 / 5.39)	$14,842.30

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