On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $700,000 and has an expected useful life of six years. Its normal sales price is $700,000. The residual value after four years is $100,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 5%. (FV of $1, PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Calculate the amount of the annual lease payments.
On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $700,000 and has an expected useful life of six years. Its normal sales price is $700,000. The residual value after four years is $100,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 5%. (FV of $1, PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Calculate the amount of the annual lease payments.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ee 302.
Transcribed Image Text:On January 1, James Industries leased equipment to a customer for a four-year period, at which
time possession of the leased asset will revert back to James. The equipment cost James
$700,000 and has an expected useful life of six years. Its normal sales price is $700,000. The
residual value after four years is $100,000. Lease payments are due on December 31 of each year,
beginning with the first payment at the end of the first year. The interest rate is 5%. (FV of $1, PV of
$1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
Calculate the amount of the annual lease payments.
Transcribed Image Text:Table or calculator function:
11
Guaranteed Residual Value
Amount to be recovered (fair value)
Guaranteed residual value
Amount to be recovered through periodic lease payments
11
Table or calculator function:
11
Lease Payment
mount of fair value recovered each lease payment
n
n
PV of $1
$
$
S
Present value
PVA of $1
Lease Payments
5%
700,000
(5,000) X
700,791 X
4
4
5%
202,242 x
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