Glade Co. leases computer equipment to customers under a sale-type lease without profit. The equipment has...
Glade Co. leases computer equipment to customers under a sale-type lease without profit. The equipment has no residual value at the end of the lease and the leases do not contain bargain purchase options. Glade wishes to earn 8% interest on a five-year lease of equipment with a fair value of $323,400. The present value of an annuity due of $1 at 8% for five years is 4.312. What is the total amount of interest revenue that Glade will earn over the life of the lease?
| $51,600 |
| $139,450 |
| $75,000 |
| $129,360 |
Homework Answers
| Fair value of Equipment | 323400 | |
| Divide by PV factor of an annuity due of $1 | 4.312 | |
| Annual payments | 75000 | |
| Total Annual payments | 375000 | =75000*5 |
| Less: Fair value of Equipment | 323400 | |
| Total amount of interest revenue | 51600 | |
| Option 1 51,600 is correct |
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