Each of the four independent situations below describes a sales-type lease in which annual lease payments of $190,000 are payabl
e at the beginning of each year. Each is a finance lease for the lessee.
Situation
1 2 3 4
Lease term (years) 7 7 8 8
Lessor's and lessee's interest rate 10% 12% 11% 11%
Residual value:
Estimated fair value 0 $68,000 $9,800 $68,000
Guaranteed by lessee 0 0 $9,800 $78,000
Determine the following amounts at the beginning of the lease
Situation
1 2 3 4
A The lessor's:
1 Lease payments
2 Gross investment in the lease
3 Net investment in the lease
B The lessee's:
4 Lease payments
5 Right-of-use asset
6 Lease payable
Situation
1 2 3 4
Lease term (years) 7 7 8 8
Lessor's and lessee's interest rate 10% 12% 11% 11%
Residual value:
Estimated fair value 0 $68,000 $9,800 $68,000
Guaranteed by lessee 0 0 $9,800 $78,000
Determine the following amounts at the beginning of the lease
Situation
1 2 3 4
A The lessor's:
1 Lease payments
2 Gross investment in the lease
3 Net investment in the lease
B The lessee's:
4 Lease payments
5 Right-of-use asset
6 Lease payable
1 answer:
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Answer:
(i) Option (A) is correct.
(ii) Option (A) is correct.
Explanation:
(i) Marginal revenue refers to the change in total revenue obtained from the sale of an extra unit of a commodity. It is calculated by differentiating total revenue with respect to output. It is shown as:
where,
TR = Total revenue
q = output
(ii) In a perfectly competitive market, price is equal to both average revenue and marginal revenue. Since, firms in a competitive market are not required to reduce the price of their product for selling more number of units. Hence, the average revenue remains the same at all the level of output. That's why average revenue in equal to the price under perfect market conditions.
Therefore, every additional unit of an output is sold at a same price, so the marginal revenue obtained from an extra unit is constant and hence, price is equal to the marginal revenue.