Question

Jansen Company leased a machine with a cost and fair value of $250,000 to Naylor Company. The machine will have no residual value at the end of the 6-year lease. What will the six beginning-of-the-year lease payments be if the lessor’s implicit interest rate is 12%?

Answer 1

Answer:

$54,291.45

Explanation:

Given:

Present value = $250,000

Duration, n = 6 years

Rate, r = 12%

Now,

$\textup{Present value}=\textup{Annuity}\times([\frac{1-(1+r)^{-n}}{r}]\times(1+r))$

on substituting the respective values, we get

$\textup{250,000}=\textup{Annuity}\times([\frac{1-(1+0.12)^{-6}}{0.12}]\times(1+0.12))$

or

$\textup{Annuity}=\frac{250,000}{4.6047}$

or

Annuity = $54,291.45