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 will accept the offer if the price per painting is $56,312.41 or higher.
Explanation:
We will calculate the present value of the other option which is, selling our painting as a freelancer.
C 315,000.00
time 5
rate 0.2
PV $942,042.8241
Now, we subtract the signing bonus of 100,000
942,042.83 - 100,000 = 842,042.83
And solve for the annual proceeds from the painting we need to equalize the opportunity cost:
PV 842,042.83
time 5
rate 0.2
C $ 281,562.03
Now, we divide by the 5 painting per year:
$281,562.03 per year / 5 painting per year = $56,312.41