Calculating Lessor Payment-Purchase Option Armstrong Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The fair value of the equipment is $45,000 and the lessor expects a rate of return of 6% on the lease contract. The lessee has an option to purchase the equipment at the end of the 5-year term at $7,500, which is 20% under the estimated fair value at that time. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Armstrong Inc. charge in order to earn its expected rate of return on the contract? Note: Enter the answer in dollars and cents, rounded to the nearest penny. Note: Do not use a negative sign with your answer. Lease payment $ 540x
Calculating Lessor Payment-Purchase Option Armstrong Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The fair value of the equipment is $45,000 and the lessor expects a rate of return of 6% on the lease contract. The lessee has an option to purchase the equipment at the end of the 5-year term at $7,500, which is 20% under the estimated fair value at that time. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Armstrong Inc. charge in order to earn its expected rate of return on the contract? Note: Enter the answer in dollars and cents, rounded to the nearest penny. Note: Do not use a negative sign with your answer. Lease payment $ 540x
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Calculating Lessor Payment-Purchase Option
Armstrong Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The fair value of the equipment is $45,000 and the lessor expects a rate of return of 6% on the lease contract. The
lessee has an option to purchase the equipment at the end of the 5-year term at $7,500, which is 20% under the estimated fair value at that time. If the first annual payment is required at the
commencement of the lease, what fixed lease payment should Armstrong Inc. charge in order to earn its expected rate of return on the contract?
Note: Enter the answer in dollars and cents, rounded to the nearest penny.
• Note: Do not use a negative sign with your answer.
Lease payment
540 x
Transcribed Image Text:Calculating Lessor Payment- Unguaranteed Residual Value
Marshall Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The equipment has a useful life of 8 years. The fair value of the equipment is $160,000 and the lessor expects a rate
of return of 5% on the lease contract. Marshall Inc. expects the equipment to have a fair value of $60,000 at the end of 5 years; however, the lessee does not guarantee the residual amount. If the first
annual payment is required at the commencement of the lease, what fixed lease payment should Marshall Inc. charge in order to earn its expected rate of return on the contract?
Note: Enter the answer in dollars and cents, rounded to the nearest penny.
• Note: Do not use a negative sign with your answer.
Lease payment $
6,213.53 x
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